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Inflation

Eurozone inflation drops further, puts pressure on ECB

The rate of inflation in the eurozone has dropped by more than expected, to 0.5 percent in May. The figures put further pressure on the ECB to act.

ECB likely to lower eurozone base rate

Preliminary figures from Europe's statistics office, Eurostat, for the month of May released on Tuesday, show that prices are rising at a rate of just 0.5 percent annually, compared with a 0.7-percent rate the month before.

The statisticians said that food and fuel, in particular, had become cheaper.

The overall figure was dragged down by an unexpectedly low rate of inflation in Germany, where prices rose by just 0.9 percent in May.

It adds pressure on the European Central Bank (ECB) to act when it meets on Thursday. Inflation in the bloc has been low for several months, increasing concerns that the eurozone could fall into deflation.

When consumer prices drop, growth grinds to a halt as consumers delay purchases in the hope that prices will drop even further. Weak growth in Italy and France are adding to the central bank's woes.

The ECB's refinancing rate - often called its base rate - is already at a historic low of 0.25 percent. The bank could cut that rate to zero, and there is also talk of cutting to negative the interest rate on money deposited with it by banks, in an effort to push them to lend that money rather than store it with the ECB.

ng/hg (AP, FP)

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