Eurozone inflation rate dips but still remains positive

Preliminary data for Germany, Europe’s largest economy, on Monday showed that consumer prices there inched up by just 0.1 percent, a steep drop from the 0.7 percent increase in May, while Spanish inflation was flat year-on-year last month following price falls a month earlier.

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Excluding energy and unprocessed food – what the European Central Bank calls core inflation – prices were up 0.8 per cent from 0.9 per cent in May.

“Looking ahead, energy effects should continue to push headline inflation a bit higher”. Services prices climbed 1% after rising 1.3%.

Developments in the eurozone’s economy are being overshadowed by the worsening Greek debt crisis with talks with creditors on a new bailout at an impasse and the country set to miss a payment to the global Monetary Fund on Tuesday. The plot line was that Greece would hold a referendum on Sunday on the creditor’s proposals, although rumours are in the market that perhaps the prime minister, Alexis Tsipras is reconsidering the last idea put forward by Jean-Claude Juncker, president of the European Commission.

Another report from Eurostat showed that the unemployment rate remained unchanged at 11.1 percent in May.

June’s inflation dip renews pressure on the central bank, which launched a 1.1-trillion-euro (1.23-trillion-dollar) bond-buying programme in March aimed at heading off the threat of deflation and driving consumer prices back up towards its target.

Eurostat also said on Tuesday that the number of people without jobs in the 19-member single currency area dropped by 35 000 last month to 17.726 million.

Youth unemployment in Greece stood at a huge but lower 49.7 per cent and remained high in Spain, at 49.3 per cent.

Teunis Brosens, Eurozone economist at ING, said that May’s spike in core and services inflation had been reversed, implying that there was no trend increase.

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That is the key…private sector activity, not state intervention or state managed demand. I would prefer to see them gone.

Eurozone inflation falls to 0.2%