Euro zone inflation confirmed slowing to one-year low in May: Eurostat

Inflation in the euro zone slowed to 1.2% in May, the lowest rate in more than a year, as price growth in the energy and services sectors slackened, the European Union statistics agency said on June 18, confirming its earlier estimates.

The final data is bad news for the European Central Bank (ECB), which targets a rate below but close to 2% and has promised further action if inflation does not pick up.

Eurostat said prices in the 19-country currency bloc went up by 1.2% on the year, slowing from 1.7% in April. It was the lowest growth rate since April 2018 when inflation was also recorded at 1.2%.

On the month, prices were nearly stable, posting a 0.1% increase that was below market forecasts of a 0.2% rise, new data released on Tuesday by Eurostat showed.

Prices slowed despite a record increase in euro zone wage costs in the first quarter of the year. The apparent inconsistency could partly be explained by the fact that higher wage costs for firms do not always translate into more cash for consumers as payroll taxes remain high in the bloc.

The ECB will need to ease policy again, possibly through new rate cuts or asset purchases, if inflation does not head back to its target, ECB President Mario Draghi said on June 18.

Eurostat confirmed that the core inflation measure the ECB looks at in policy decisions, which excludes the volatile components of food and energy, was 1.0% in May on the year against 1.4% in April.

A narrower indicator, which also excludes alcohol and tobacco prices, slowed to 0.8% in May from 1.3% in the previous month, confirming earlier estimates.

Inflation was mostly dragged down by energy prices which increased 3.8% in May, after a 5.3% rise in April. Inflation in the services sector, the largest in the euro zone economy, nearly halved to 1.0% from 1.9% in April, data show.