Eurozone inflation at zero

Preliminary data showed that the initial estimate for the CPI in the eurozone economy fell from a year-over-year rate of 0.6% in April to 0.0% in May, the lowest level since data began 13 years ago. The collapse in oil prices from a year ago has played a major role in extinguishing inflation, while declining commodity costs and falling demand around the world have also been big contributors.



European Central Bank officials expect inflation to briefly turn negative but the risk of deflation is seen as small. Policymakers earlier in the month cut the key lending rate to 1.0% and have hinted the rate-cutting campaign may not be over.

ECB vs. the Fed

The ECB had been particularly hawkish last year, focusing on it sole mandate of price stability. Unlike the Federal Reserve, which does not have an explicit price target, the ECB's stated aim is to keep inflation slightly below 2%.

In theory, it does not focus on growth or unemployment, whereas the Federal Reserve has a dual mandate that includes price stability and economic growth. The Fed does have an "implicit" price target for core inflation, minus food and energy, of 1-2%.

The ECB came under heavy criticism in 2008 when it bumped rates up to fight inflation even as the US economy was slipping into a recession. The drop in crude prices quickly brought headline inflation under control, but monetary bankers expect a slight acceleration later in the year.