Eurozone price inflation fell unexpectedly in May, increasing the risks of deflation in the currency area and all-but sealing the case for the European Central Bank to act this week.

Annual consumer inflation in the 18 countries sharing the euro fell to 0.5 per cent in May from 0.7 per cent in April, the EU’s statistics office Eurostat said yesterday.

Economists surveyed by Reuters expected inflation to remain at April’s level.

“The ECB hardly needs any more reason to deliver a major package of stimulative measures at its June policy meeting tomorrow to counter the risk of prolonged very low inflation turning into deflation,” said Howard Archer, chief European economist at consultancy IHS Global Insight.

Sources told Reuters last month that the ECB was preparing a package of policy options for its meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms (SMEs).

Economists expected inflation to remain at April’s level

The weak rate of May price rises would seem to cement expectations that the ECB will now deliver a series of measures to make it even cheaper to borrow and help the economy. May’s reading is back at levels last seen in March – the lowest level since November 2009. Tuesday’s reading came after a low number from Germany.

Inflation in the €9.5 trillion economy is stuck in the ECB’s ‘danger zone’ of below 1 per cent, a sign of the fragile recovery. The ECB says it stands ready to use all tools available to fend off deflation risks and aid the economy.

“The ECB has consistently underestimated the deflationary forces threatening Europe and now is the time for unconventional monetary policy,” said Dominic Rossi, global chief investment officer at Fidelity Worldwide Investment.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.