Euro inflation falls in May

Growth measures are likely to be announced by the European Central Bank (ECB) after the latest official figures indicated inflation fell over the course of May.

Inflation for the eurozone was revealed to be down to 0.5 per cent last month, which was lower than the figure of 0.7 per cent recorded by Eurostat in the previous month.

The eurozone unemployment rate was also revealed to have fallen to 11.7 per cent in April from 11.8 per cent in March, although 18.75 million people were still unemployed in April.

Dominic Rossi, global chief investment officer at Fidelity Worldwide Investment, stated that the ECB has "consistently underestimated the deflationary forces threatening Europe and now is the time for unconventional monetary policy".

Inflation measures

IHS Global Insight economist Howard Archer explained the new inflation and unemployment data is likely to push the ECB into announcing new measures when it meets later in the week.

"If the ECB was at all unsure of the need for strong action then the dip in eurozone consumer price inflation to just 0.5 per cent in May surely gave the governing council a final shove," he said.

Hints were given out over a change to interest rates by the ECB last month by its head Mario Draghi, who stated that the bank may act to counter the dropping rate of inflation.

The ECB held interest rates at 0.25 per cent for another month when it met in May, but Mr Draghi stated that the 24-member ECB council was "dissatisfied about the projected path of inflation", adding that the bank was "not resigned to have too low inflation for too long a time".

A surprise change to interest rates may therefore be announced by the ECB this week, but it is likely that UK interest rates will remain at their current record low of 0.5 per cent for the time being. Industry commentators currently believe that the most likely time for the Bank of England's Monetary Policy Committee to announce a rate rise will be in the second quarter of 2015.

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