FRANKFURT, Germany (AP) — Inflation in the eurozone sagged to an annual rate of 0.5 percent in May, adding pressure on the European Central Bank to take action to support a weak recovery and ward off the danger of a drop in consumer prices.
The figure released Tuesday by the European Union's statistics agency fell from 0.7 percent in April and was short of market analysts' forecasts for 0.6 percent. The overall figure was dragged down by an unexpectedly low 0.9 percent rate in Germany, the biggest of the 18 countries that use the euro.
Inflation has been low for several months, increasing concerns that the eurozone could fall into outright deflation, a sustained drop in consumer prices that chokes off growth as consumers delay purchases in hopes of bargains.
Even merely weak inflation can hold back the economy if it lasts too long. It can make it harder for indebted companies and governments to reduce debt, and it also makes it harder for weaker countries such as Greece or Portugal to become more competitive in international trade.
The ECB has said it's not happy with the current rate of inflation, which is well below its goal of just under 2 percent. Analysts expect it to cut interest rates and possibly take further measures at its next monthly meeting on Thursday.
Many analysts expect the bank to cut its main interest rate — called the refinancing rate, at which it lends to banks — from its current record low of 0.25 percent. There are also predictions the bank will cut to negative the interest rate on money deposited with it by banks, in an effort to push them to loan that money rather than store it with the ECB.
The ECB could also take other steps to increase credit to businesses, such as by offering more cheap loans to banks that they could then lend on.
Lower interest rates should stimulate the economy by making it cheaper for companies and consumers to borrow so they can spend and invest. The ECB has cut the rate at which it lends to banks, but those cheap rates are not being passed to companies on because banks themselves have weak finances and are wary of issuing new loans.
The figure released Tuesday by the European Union's statistics agency fell from 0.7 percent in April and was short of market analysts' forecasts for 0.6 percent. The overall figure was dragged down by an unexpectedly low 0.9 percent rate in Germany, the biggest of the 18 countries that use the euro.
Inflation has been low for several months, increasing concerns that the eurozone could fall into outright deflation, a sustained drop in consumer prices that chokes off growth as consumers delay purchases in hopes of bargains.
Even merely weak inflation can hold back the economy if it lasts too long. It can make it harder for indebted companies and governments to reduce debt, and it also makes it harder for weaker countries such as Greece or Portugal to become more competitive in international trade.
The ECB has said it's not happy with the current rate of inflation, which is well below its goal of just under 2 percent. Analysts expect it to cut interest rates and possibly take further measures at its next monthly meeting on Thursday.
Many analysts expect the bank to cut its main interest rate — called the refinancing rate, at which it lends to banks — from its current record low of 0.25 percent. There are also predictions the bank will cut to negative the interest rate on money deposited with it by banks, in an effort to push them to loan that money rather than store it with the ECB.
The ECB could also take other steps to increase credit to businesses, such as by offering more cheap loans to banks that they could then lend on.
Lower interest rates should stimulate the economy by making it cheaper for companies and consumers to borrow so they can spend and invest. The ECB has cut the rate at which it lends to banks, but those cheap rates are not being passed to companies on because banks themselves have weak finances and are wary of issuing new loans.
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