The preliminary estimate for inflation in the 16-nation eurozone economy fell to –0.1% year-over-year in June from 0.0% in May.
Falling prices in Europe may complicate the European Central Bank’s job as it has stubbornly held interest rates at 1.0% and most analysts expect no change at the July meeting.
Policymakers had expected inflation to briefly turn negative and it is doubtful they will be surprised by today’s report. The ECB expects prices to edge up by the end of the year. But the central bank’s inflation target of “close to, but below 2%” leaves them plenty of room for more action.
In addition, their own forecasts suggest that an economic upturn won’t occur until 2010.
Please see ECB expert issues warning.
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