Euro zone inflation fell to 0.5% in May

Tuesday 03 June 2014 10.37
The European Central Bank is expected to announce a programme of measures to address low inflation
The European Central Bank is expected to announce a programme of measures to address low inflation

Euro zone inflation fell to 0.5% in May, down from the 0.7% record in April, official data has shown.

The level is the same as in March, which was the lowest since the worst months of the financial crisis in 2008 and 2009.

Inflation in the 18-nation euro zone has fallen steadily in the past year, reflecting weak demand, and has raised expectations that the European Central Bank will cut rates at a policy meeting on Thursday.

Inflation is way below the ECB's target of 2% and shows little sign of picking up any time soon.

The ECB has held its key interest rates steady at their current all-time lows since November, repeatedly promising to act if necessary to avert a bout of destructive deflation in the 18 countries that share the euro.

ECB president Mario Draghi has hinted strongly at a move at the next meeting, saying the central bank's decision-making governing council was "dissatisfied" with the current path of inflation and was "not prepared to accept it as a fact of nature."

Deflation, once reached, can push an economy into a vicious spiral of falling growth and rising unemployment, and it is notoriously difficult to reverse.

The Eurostat data agency said service sector prices rose 1.1% in May on an annual comparison, with prices unchanged for energy and industrial goods.

Food and alcohol prices edged up by 0.7%.

"The ECB hardly needs any more reason to deliver a major package of stimulative measures at its June policy meeting on Thursday to counter the risk of  prolonged very low inflation turning into deflation," Howard Archer, chief European economist at IHS Global Insight, said in a note.