RTTNews - Eurozone annual inflation stayed flat in May, the lowest since records began in 1996, raising deflationary concerns.

A report from the European Union statistics office Eurostat confirmed zero growth in consumer prices that came after a 0.6% increase in April. The statistical office confirmed the initial estimate released on May 29. The European Central Bank aims to keep inflation rates below, but close to, 2% over the medium term.

Consumer prices were up 0.1% month-on-month in May, while economists were expecting a zero reading. The highest monthly contribution came from transport and communications, while the lowest was from recreation and culture and health.

Excluding energy, food, alcohol and tobacco, the core CPI was up 1.5% year-on-year in May, slower than the 1.8% logged in April. Economists expected the core annual inflation to ease to 1.6%.

EU annual inflation eased to 0.7% in May from 1.3% in April. A year earlier, the annual rate was 4%. Among EU member states, lowest annual rates were observed in Ireland, Portugal, Spain and Luxembourg, while the highest rate was reported in Romania.

According to ECB staff macroeconomic projections, the inflation rate is set to range between 0.1% and 0.5% in 2009, revised slightly downwards from between 0.1% and 0.7% predicted in March. For 2010, Eurosystem staff projects annual HICP inflation to range between 0.6% and 1.4%.

In a separate communique, the Eurostat said the labor cost index for the euro area rose 3.7% in the first quarter, slower than a revised 4% increase in the fourth quarter. Among the main components of labor costs, wages and salaries grew 3.6% annually, while the non-wage costs were up 4.5%.

In its latest Financial Stability Review, the European Central Bank said financial crisis has forced banks to write off billions of dollars. ECB forecasts total amount of writedowns by the end of 2010 to amount to US$649 billion.

There is no room for complacency because the risks for financial stability remain high, ECB Vice President Lucas Papademos said. He added that policymakers would have to be especially alert in the period ahead.

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