Euro zone final CPI print matches original estimates, indicate persistent deflationary pressure

The final estimate of euro area inflation in May released by Eurostat showed that consumer prices in Eurozone dropped 0.1 percent y/y in May, having slowed its pace of decline after April’s 0.2 percent drop. This was the second consecutive decline in prices. Headline inflation has been below the European Central Bank's target of ‘below, but close to 2 percent’ since early 2013.

The final data confirms the flash estimate published on May 31. The EU's statistics agency noted that restaurants, rents and tobacco prices nudged inflation higher while fuel, heating oil and gas had the biggest downward impact.

Month-on-month, consumer prices moved up 0.4 percent in May. Core inflation that excludes energy, food, alcohol and tobacco rose marginally to 0.8 percent from 0.7 percent in April. The core rate also matched preliminary estimate.

Negative rates were observed in 16 of the bloc’s 28 member countries. Romania, Bulgaria and Cyprus experienced the lowest annual rates, while Belgium, Malta and Sweden recorded the highest rates. Compared with the previous month, the annual inflation rate in May fell in nine EU countries, remained stable in eight and rose in 11.

“We expect inflation to move higher in the coming months, especially as last year’s energy price falls drop out of the annual comparison, but it is likely to remain well below the ECB’s 2 percent target ceiling for some time. Overall, owing to a weak first half, we expect headline inflation to average only 0.3 percent this year, rising to 1.5 percent in 2017,” said Lloyds Bank in a report.