Eurozone inflation mirrors weak economies | Business| Economy and finance news from a German perspective | DW | 16.07.2012
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Business

Eurozone inflation mirrors weak economies

Prices in the eurozone have remained at a 16-month low, as inflation in June held steady for the second consecutive month. EU statisticians cited lower fuel costs on the back of a weaker economy as reason.

Annual inflation in the eurozone was 2.4 percent in June, unchanged from May and lower than inflation in April, which had been 2.6 percent, the European Union's statistics office, Eurostat, said Monday.

Price pressures eased in June due to a 1.7 percent drop in energy prices compared with the previous month, and lower costs for communications, down 2.8 percent.

Higher prices for alcohol and tobacco - up 4.9 percent - as well as for housing (+3.7 percent), and transport (+3.1 percent), had been the main drivers for inflation, Eurostat said.

However, inflation in the 17-nation currency area has remained above the European Central Bank's (ECB) target of 2 percent for the 19th consecutive month. ECB president Mario Draghi said that inflation would fall below this level next year as he expected the eurozone economy to slow.

Inflation trick

In the whole of the European Union, the lowest inflation was reported in Sweden, with a 0.9 percent rise, Greece, up 1.0 percent, and Bulgaria, were prices rose at an annual rate of 1.6 percent in June. Germany also saw below-average inflation of 2.0 percent, down from 2.2 percent in May.

By contrast, inflation was most dramatic in Hungary - up 5.6 percent - as well as in Estonia and Malta which both saw prices go up by 4.4 percent.

According to some economists, successful economies like Germany should allow higher inflation, while weaker economies like Greece should aim to curb inflation for the eurozone to be able to reduce diverging competitiveness in the bloc.

In an effort to help struggling eurozone members, the ECB cut its benchmark interest rate by 0.25 percent earlier this month, resulting in a historically low rate of just 0.75 percent.

uhe/mz (dpa, AFP)