On Tuesday June 2, 2015, Eurostat, the European Union’s statistics office, released the eurozone area’s inflation data for May, which is at an annualized rate of 0.3%. (Source: Eurostat, June 2, 2015.)
All Components Increased Except for Energy
The positive 0.3% inflation in May is an improvement from April’s zero percent.
Among the components, services enjoyed the largest increase of 1.3%, compared to one percent in April. Food, alcohol, and tobacco gained 1.2%, in contrast to one percent in April.
Non-energy industrial goods increased 0.3%, higher than April’s 0.1%.
Energy continued to experience deflation due to low oil prices. For May, the rate was at negative five percent. The decline was less sharp compared to April’s -5.8%.
The core inflation rate, which excludes energy, food, alcohol, and tobacco, was at 0.9%—higher than April’s 0.6%.
The euro area inflation rate was better than expected. As a result, the euro rose one percent against the dollar on Tuesday.
ECB Printing Money
With positive inflation reported for May, Europe’s economy is facing less deflationary pressure. However, problems still remain.
The European Central Bank (ECB) started the massive 1.1 trillion euro quantitative easing program in March. The ECB hopes that printing money to buy bonds can stimulate the economy.
However, more money circulating the economy will cause inflation if growth does not pick up. This is intuitive; when more money is chasing the same basket of goods, each good in the basket will command a higher price.
Although inflation is not really a concern right now, monetary inflation will eventually translate into price inflation.
Moreover, other than the slightly positive inflation, the ECB’s money printing program is yet to show its stimulating effects. Yesterday, France reported that its unemployment level was at an all-time high in April; there were 3.53 million people out of work, an increase of 26,000 from the previous month. The second-largest economy in the eurozone also didn’t grow much, with a growth rate of 0.6% for the quarter.