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Eurozone Inflation Sharply Slows Ahead Of ECB Meeting

eurozoneflag feb01 04jun19 lt

Eurozone's headline inflation eased sharply in May to its lowest level in over a year and core price growth fell below 1 percent, raising concern for policymakers at the European Central Bank who are preparing for a rate-setting session later this week.

Inflation slowed to 1.2 percent in May from 1.7 percent in April, preliminary estimates from Eurostat showed on Tuesday, while economists had predicted a 1.5 percent price growth.

The latest inflation rate was the lowest since April last year, when it was at the same level.

Core inflation, which excludes prices of energy, food, alcohol & tobacco, eased to 0.8 percent from 1.3 percent. Economists had expected a rate of 1.1 percent. In March, core inflation was 0.8 percent.

The ECB targets inflation "below, but close to 2 percent".

The sharp slowdown in inflation is a major concern for ECB rate-setters as they worry over the downside risks to euro area growth posed by the global economic slowdown, escalating trade tensions and the impact of Brexit uncertainty.

"This will no doubt make some ECB board members a little hot under the collar, as pressure to take action is mounting," ING economist Bert Colijn said.

"At the April meeting, it was already mentioned that price pressures remain uncomfortably low, which has certainly not improved since then. Expect a dovish tone from the ECB on Thursday."

The ECB is widely expected to announce steps to boost growth in the Eurozone and to cushion the impact of a global slowdown on the bloc, following the policy session in the Lithuanian capital Vilnius.

Energy inflation remained the highest among main components, despite easing to 3.8 percent from 5.3 percent. Prices of food, alcohol and tobacco grew 1.6 percent after a 1.5 percent increase in April.

Services costs rose 1.1 percent year-on-year following a 1.9 percent climb in the previous month. Prices of non-energy industrial goods increased 0.3 percent after a 0.2 percent rise in April.

Separately, Eurostat announced that euro area unemployment rate dropped to the lowest since 2008 in April.

The unemployment rate eased to 7.6 percent from 7.7 percent in March. This was the lowest rate seen since August 2008. The rate was expected to remain unchanged at 7.7 percent.

The number of unemployed persons decreased 64,000 from March to 12.529 million in April.

The unemployment rate among youth aged below 25 dropped marginally to 15.8 percent in April from 15.9 percent in March.

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