BLBG:Euro-Area July Inflation Holds at 1.6% as Recession Lingers
Euro-area inflation held steady in July after accelerating for two months, adding leeway for the European Central Bank to loosen monetary policy as the 17-nation currency bloc struggles to pull out of a record-long recession.
The annual inflation rate was 1.6 percent, the same as in June, the European Union’s statistics office in Luxembourg said today. That’s in line with the median of 42 economists’ estimates in a Bloomberg News survey. It’s the sixth straight month that the rate has been less than the ECB’s 2 percent ceiling.
“The ECB is not in a mode of being worried about inflation; it’s in more of a mode of being a little bit concerned about disinflation,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam. “It’s a worry that inflation will be settling below their price-stability goal, and that’s one of the reasons why over the last few months the ECB has adopted a more dovish tone.”
The ECB’s Governing Council will keep its benchmark rate unchanged at a record low 0.5 percent when it meets in Frankfurt tomorrow, according to the median of 63 economist estimates in a Bloomberg survey. While the euro area has been mired in a recession for six quarters, some signs of a turnaround are emerging, including a return to expansion in manufacturing output and improved economic confidence in July.
Policy Meeting
After the central bank’s last policy meeting on July 4, ECB President Mario Draghi pledged to keep interest rates low for an extended period amid low inflation, a subdued economic outlook and weak credit flows. The ECB in June predicted the economy will contract 0.6 percent this year before growing 1.1 percent in 2014. Consumer prices are seen rising 1.4 percent this year, according to the ECB’s forecasts.
Euro-area unemployment held at 12.1 percent in June after May's figure was revised lower to that level from 12.2 percent reported initially, a separate report showed today.
The euro was higher against the U.S. dollar, trading at $1.3288 at 10:53 a.m. in Brussels, up 0.2 percent on the day. The Stoxx Europe 600 Index was 0.1 percent higher at 299.57.
Energy prices increased 1.1 percent in July after a 1.2 percent gain a month earlier, today’s report showed. Prices of food, alcohol and tobacco rose 3.5 percent, compared with 3.2 percent in June; while the cost of services increased 1.4 percent in the latest month.
British American Tobacco Plc (BATS), Europe’s biggest cigarette maker, said today that first-half operating profit rose 4 percent as higher prices offset falling consumption. Hugo Boss AG reported second-quarter earnings that beat estimates, with the gross margin improving, after the German luxury-clothing maker opened more stores.
Fiat SpA (F), the Italian automaker that controls Chrysler Group LLC, said yesterday that it expects car sales to fall to about 1.3 million this year. Strong U.S. sales helped the Turin-based company post a better-than-expected second-quarter profit.
To contact the reporter on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
