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Analysis

Euro area inflation

by Gabriel Stein

Tue 17 Jun 2014

Euro area inflation Enlarge Chart loading Image

What the chart shows: The chart shows the twelve-month per cent change in three EA inflation measures, headline, underlying (excluding energy and unseasonal food) and trimmed mean

Why the chart is important: The risk of deflation in the euro area remains one of the biggest near-term risks facing the world economy. While the risk of consumer prices falling for more than one or two months may have receded, inflation will remain well below the ECB’s ‘close to but below 2%’ target throughout this year. While not as bad as outright deflation, this is still a concern, since it means little or no nominal income growth, in turn meaning that the debt burden in heavily indebted countries/sectors will not ease. Recent inflation trends are therefore discouraging and a disappointment for the ECB. Not only did the headline rate drop back to 0.5% in May from a year earlier, on a monthly basis consumer prices fell for a second time this year. Underlying inflation also edged down, returning to it all-time low of 0.8%, previously reached in March this year. Trimmed mean inflation has picked up slightly but remained low at 0.7%. With hopes for higher inflation receding, the pressure on the ECB to act further is likely to increase in the autumn.

Chart and comments provided by Oxford Economics www.oxfordeconomics.com