Euro area inflation steady at 0.5 pct underscores Draghi challenge

By Ian Wishart

The euro-area inflation rate held steady in June at less than half the European Central Bank’s target, underscoring the challenge faced by Mario Draghi as he tries to stoke prices and ignite growth.

Consumer prices grew 0.5 percent in the year, equaling May’s increase, the European Union’s statistics office in Luxembourg said today. That matched the median forecast in a Bloomberg News survey of 35 economists. Core inflation unexpectedly accelerated.

“This keeps the pressure on the ECB to keep the door open to further policy easing,” said Martin van Vliet, senior euro economist at ING Groep NV in Amsterdam. “It’s premature to suggest that this downside risk of Europe sliding into Japan deflation has vanished. It’s still a fragile economic situation.”

Anemic economic growth and persistently slow inflation prompted the ECB president and his officials to introduce a range of measures earlier this month. The Frankfurt-based central bank cut its benchmark interest rate to a record-low 0.15 percent, took its deposit rate below zero and unveiled targeted loans to help revive lending and growth.

The euro-zone economy will expand by 0.3 percent in the second and third quarters, accelerating to 0.4 percent in the final three months of the year, according to a separate Bloomberg survey of economists.

Further Stimulus

With inflation at less than half the ECB’s target of just below 2 percent for a ninth month, Draghi has prepared investors for the prospect of further stimulus should the threat of a negative price spiral remain.

“As long as the inflation rate is considerably below our definition of price stability, there is a risk that expectations for future inflation become unanchored,” ECB Executive...