Eurozone Inflation Tumbles In May, Jobless Rate Eases

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Eurozone inflation dropped sharply in May to its lowest level thus far this year despite the weakest jobless rate in more than eight years, supporting the caution exercised by the European Central Bank that is set to review its policy stance next week.

Headline inflation dropped to 1.4 percent from 1.9 percent in April, the flash estimate from Eurostat showed Wednesday. Economists had forecast 1.5 percent.

Core inflation, which excludes energy, food, alcohol & tobacco, dropped to 0.9 percent from 1.2 percent. Economists were looking for 1 percent.

Underlying inflation have largely been stagnant thus far this year, except for a blip in April that was caused by a late Easter.

Energy price inflation slowed to 4.6 percent from 7.6 percent. Prices in the food, alcohol & tobacco segment grew 1.5 percent, same as in the previous month.

Detail inflation data for May is scheduled to be released on June 16.

The ECB, which targets inflation 'below, but close to 2 percent,' has maintained that the recent upward trend in inflation was unconvincing.

And it is the main reason why ECB President Mario Draghi and his team assert that the massive stimulus by way of asset purchases and negative interest rates is necessary to support the euro area economic recovery, which they say is "fragile."

ECB policymakers are set to review the policy stance on June 8, when they will have the fresh set of macroeconomic projections from the ECB staff. Economists are looking forward to a downward revision to inflation projections.

"Price data will hardly be to the ECB's liking, since they show that yet again its inflation projection for 2017 is too high," Commerzbank analyst Christoph Weil said.

Weil, who expects further retreat in inflation in coming months, said there were no signs of any real underlying price momentum, suggesting that the ECB is unlikely to raise interest rates in the near future.

Separately, the Eurostat reported that the seasonally adjusted jobless rate dropped to 9.3 percent in April from 9.4 percent in March. This was the lowest rate since March 2009.

The drop in the jobless rate shows that the labor market maintains its relatively strong momentum, ING Bank economist Bert Colijn said.

"This is an encouraging sign for the return of wage pressures, even though significant underemployment is delaying the impact on wage growth for now," the economist noted.

Some pickup in wage growth could be expected in the second half of the year due to labor shortages, but that is unlikely to be enough for a significant impact on inflation, Colijn added.

"The ECB will be cautious with its plans for monetary policy to avoid a 'taper tantrum,' but a change in communication on the balance of risk and the forward guidance can be expected next week," Colijn said.

The EU jobless rate dropped to 7.8 percent from 7.9 percent in March and was the lowest since December 2008.

In April, the number of unemployed in the whole EU totaled 19.12 million, of which 15.04 million were in the euro area. Compared to the previous month, the jobless figure declined by 233,000 in the euro area and by 253,000 in the EU.

The youth unemployment, which applies to those under 25 years of age, totaled 2.62 million in the euro area. The figure dropped by 419,000 from a year ago.

The youth jobless rate was 18.7 percent in the euro area versus 21.4 percent in the same month last year. The highest rate was observed in Greece, while the lowest was in Germany.

In Germany, the unemployment rate dropped to a new post-reunification low of 5.7 percent in May from 5.8 percent in April, figures from the Federal Labor Agency showed Wednesday. The number of unemployed dropped by 9,000 to 2.54 million.

Meanwhile in Italy, the jobless rate fell more-than-expected to 11.1 percent in April, marking the lowest figure since September 2012.

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