RTTNews - Annual inflation in the euro area turned negative for the first time on record in June, a flash estimate from the Eurostat showed Tuesday.
The consumer price index or CPI dropped 0.1% year-on-year in June after remaining flat in May. However, the decline was slightly less than the expected fall of 0.2%. The final report for June is due on July 15.
This was not a surprise, Dresdner Kleinwort analyst Rainer Guntermann said. The analyst noted that a trend reversal to an inflationary climate is however not in sight for the foreseeable future.
After hitting a record high of 4% in June and July last year, annual inflation steadily decreased to reach a record low of 0.0% in May 2009, raising deflationary concerns. The European Central Bank or ECB targets to keep inflation below, but close to 2% over the medium term.
ECB President Jean-Claude Trichet said earlier in the month that the Eurozone's annual inflation rates are projected to decline further and temporarily remain negative over the coming months, before returning to positive territory by the end of 2009.
The ECB lowered its key interest rate by a cumulative 325 basis points since early October 2008. In June, the bank left its key interest rate unchanged at a record low of 1%. The bank's Governing Council is reviewing its monetary policy meeting on July 2. Most economists expect the ECB to keep the rate on hold for the second straight month.
Dresdner Kleinwort analyst said, For the time being, the ECB will continue to merely observe the inflation trend, as it is currently in line with expectations and longer-term inflation expectations are still quite stable. The analyst added, We do not expect a turnaround in interest rates before the fourth quarter of 2010.
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