Eurozone inflation returns to dispel deflation concerns

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Azad Zangana, senior European economist at Schroders, comments on today’s eurozone inflation data

The eurozone’s flash estimate for the harmonised consumer price index (HICP) showed an annual increase of 0.3% in May – the first increase since November 2014, backing up our view that deflation is not a major concern for the region.

HICP inflation was a little higher than consensus estimates of 0.2%, but remains low enough to warrant caution. Lower global energy prices have been dragging eurozone inflation lower for some months now, and continue to make a negative contribution worth about 0.7%. Inflation in food, alcohol and tobacco had also been a drag at the start of the year; however, inflation in these sub-indices has been rising lately, partly reflecting the recovery in the region’s growth, but also partly due to the depreciation in the euro in recent months.

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