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Rising food prices was one factor behind the pick-up in inflation

Eurozone returns to inflation

WT24 Desk

Inflation in the eurozone turned positive in May after five months of falls or stagnation, reviving hopes of an economic recovery in Europe, BBC reports. The annual inflation rate rose to 0.3%, up from 0% in April, the EU’s statistics agency Eurostat. said. The return of inflation is likely to be welcomed by the European Central Bank (ECB), which has sought to avoid deflation in recent months.

Prices of services rose 1.3%, while food and drink prices were up 1.2%. Energy prices fell at a slower pace. They were down 5% in May from a year earlier, compared with an annual fall of 5.8% seen in April.

The core inflation rate, which strips out volatile items such as food, energy and tobacco, was up 0.9% in the year to May from April’s 0.6%.

Deflation ‘increasingly unlikely’

In March, the ECB began a massive €1.1 trillion bond buying programme in an attempt to stimulate the eurozone economy. The latest inflation figure will raise hopes that the programme is working. Policymakers spent much of last year in fear of deflation. The worry is that if price falls become entrenched, consumers and businesses will delay purchases and investment in the expectation that prices will fall further.

Consumer inflation has not been at the ECB’s target level of close to, but below, 2% since the start of 2013, and has been falling since hitting 3% in late 2011. “This increase was stronger than widely expected, even if inflation is hardly racing ahead,” said Howard Archer, chief European economist at IHS Global Insight.

“Renewed dips into deflation for the eurozone are looking increasingly unlikely with the risks diluted by a firming in oil prices from their January lows, the weakness of the euro and improved eurozone economic activity.”

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