Eurozone inflation falls sharply

Eurozone inflation dropped sharply in May, data showed yesterday, raising the specter of a global economic slowdown sparked by a Washington-led trade war. The inflation data landed amid financial market turbulence with worries increasing that the world economy faces trouble ahead, with Brexit dangers also looming in Europe.

The EU’s Eurostat agency said inflation last month sank to 1.2 percent, significantly down from the 1.7pc logged in April. Analysts surveyed by data company Factset had predicted a more modest drop to 1.4pc. The fall puts consumer prices in the 19-nation single currency bloc even further from the European Central Bank’s inflation goal of just below 2.0pc.

Central bankers will especially be worried by core inflation, which strips out volatile prices such as energy, which fell to 0.8pc in May, from 1.3pc in April. The drop in consumer prices landed a day after data showed that factory output in the eurozone fell close to a six-year low in May.

This has compounded fears that international trade tremors caused by the protectionist offensive by US President Donald Drumpf against China and other partners are destabilizing the world economy. Economists say investor confidence is shaken by US-led trade war, putting pressure on the ECB governors to do more to boost the economy when they meet on Thursday.

“This will no doubt make some ECB board members a little hot under the collar, as pressure to take action is mounting,” said Bert Colijn, Senior Economist at ING Bank. “At the April meeting, it was already mentioned that price pressures remain uncomfortably low, which has certainly not improved since then. Expect a dovish tone from the ECB on Thursday,” he said.

However, the ECB’s firepower is limited after years of very low rates and other unprecedented steps to boost lending and growth in Europe.