By Paul Hannon
The eurozone's annual rate of inflation eased in June as
consumer prices barely rose from their year-ago levels, a reminder
that the risk of a slide into deflation hasn't been eliminated.
Surveys of businesses and economic data suggest the eurozone
economy continued to grow in the second quarter, although likely at
the same modest pace as in the previous six months.
However, should Greece be forced to leave the eurozone following
a referendum to be held on July 5, that recovery could be put at
risk if business confidence in the remainder of the currency area
takes a hit, or borrowing costs in other members that have high
levels of debt rise.
A return to economic stagnation, or outright contraction, could
see prices start to fall again.
After a long, steady decline in the inflation rate, consumer
prices first fell below their year-ago levels in December. The next
month, the European Central Bank announced the launch of a program
of quantitative easing, under which it would buy more than 1
trillion euros ($1.1 trillion) of mostly government bonds. It
launched the program in March.
Eurozone consumer prices rose for the first time in six months
during May, a victory for the ECB in its campaign to avoid a
debilitating period of deflation, during which businesses and
households might hold back on spending in the expectation that they
will get better deals in the future.
The European Union's statistics agency Tuesday said consumer
prices in June were 0.2% higher than a year earlier, a reduction in
the rate of inflation from 0.3% in May.
Excluding prices for energy, food and alcohol that are largely
beyond the ECB's influence, inflation also eased. The core annual
rate dropped to 0.8% from 0.9% as the rise in services prices
slowed to 1.0% from 1.3% on the year.
However, without a setback such as Greece's departure from the
currency area, the inflation rate seems set to pick up slowly in
the eurozone.
As the unemployment rate edges down gradually, wage rises have
started to pick up. Eurostat Tuesday said the number of people
without jobs in the 19 members of the eurozone fell by 35,000 in
May to 17.7 million. While the unemployment rate was unchanged on
the month at 11.1%, it was down from 11.6% in May 2014.
That boost to earnings has been reflected in increased retail
sales, an indication that strengthening consumer demand is likely
to push prices higher. Figures also released Tuesday showed German
retail sales expanded by 0.5% in May, supporting the expectation
that private consumption is likely to remain a solid pillar of
growth in Europe's largest economy.
German jobless claims dropped further in June, underpinning
workers' bargaining power in current wage negotiations. The BA
labor agency said Tuesday that jobless claims in June were down
1,000 from May when taking account of seasonal swings, their ninth
consecutive fall.
Without renewed drops in world energy prices or a sharp slowing
of the economy, economists expect inflation figures in the second
half of this year to climb steadily, while remaining far below the
ECB's target of just under 2%.
--Emese Bartha and Nina Adam in Frankfurt contributed to this
article.
Write to Paul Hannon at paul.hannon@wsj.com