Euro-Area Inflation Accelerates, Adding to Signs of Recovery

Euro-area inflation accelerated in May, led by the Netherlands, adding to signs the currency bloc’s economy is beginning to emerge from a record-long recession.

Annual consumer-price growth quickened to 1.4 percent from 1.2 percent in April, in line with an initial estimate on May 31, the European Union’s statistics office in Luxembourg said today. In the month, prices rose 0.1 percent. The annual core inflation rate, excluding volatile costs such as energy, alcohol and tobacco, rose to 1.2 percent from 1 percent in April.

The European Central Bank last week kept its benchmark interest rate at a record low 0.5 percent, with ECB President Mario Draghi saying the euro-area economy “should stabilize and recover in the course of the year, albeit at a subdued pace.” The ECB cut its 2013 inflation forecast to 1.4 percent from 1.6 percent.

“Even if we are going to see a gradual economic recovery, inflation will remain well behaved, I think, next year,” said Martin van Vliet, senior euro-area economist at ING Bank NV in Amsterdam. “From an inflation point of view, there’s certainly some scope for the ECB to do more if necessary.”

The euro was lower against the U.S. dollar, trading at $1.3323 at 11:05 a.m. in Brussels, down 0.4 percent on the day.

The euro-zone economy is forecast to stagnate in the second quarter before returning to growth, according to a Bloomberg News survey of economists. Gross domestic product fell 0.2 percent in the first quarter, a sixth consecutive contraction.

‘Broadly Balanced’

Draghi on June 6 called euro-area inflation risks “broadly balanced.” Consumer-price growth has been below the ECB’s 2 percent ceiling for four months.

Energy costs fell 0.2 percent last month from a year earlier, compared with a drop of 0.4 percent in April, according to today’s report. The cost of food, alcohol and tobacco rose 3.2 percent after a 2.9 percent annual gain in April, while the cost of services increased 1.5 percent.

Continued lower energy costs have given a boost to euro-zone factory output, which unexpectedly increased for a third month in April. A Markit Economics gauge of manufacturing output increased to the highest in 15 months in May, a report showed on June 3.

“Euro-zone manufacturers are being helped by softer oil and commodity prices, which are easing pressure on their margins and giving them more scope to price competitively,” said Howard Archer, chief U.K. and European economist at IHS Global Insight in London.

Russia’s OAO Gazprom, the world’s biggest natural-gas producer, said on June 4 that it sees its average price for European customers dropping for the first time in four years. Buyers including EON SE and Eni SpA have been pressuring Gazprom for discounts since its average gas price reached a record in 2008.

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