Further easing may be needed after weak inflation reading

Inflation in the eurozone remained at a paltry 0.5 per cent in June meaning it remains at little more than a quarter of the European Central Bank’s (ECB) target of below but close to 2 per cent.

The figures, confirmed by Eurostat, the commission’s statistics bureau, mean policymakers’ talks this week in Frankfurt about recent economic developments could focus on the low inflation.

After announcing a range of exceptional measures - including negative rates and an offer of up to €400bn (£321bn) in cheap four-year loans in June - few expect any big policy change from the ECB on Thursday.

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However, the longer inflation remains subdued, the greater the chances that the ECB will resort to large-scale asset purchases, often referred to as quantitative easing.

Martin van Vliet of ING wrote in a note this morning: “The unchanged eurozone inflation reading for June maintains pressure on the ECB to contemplate even further monetary easing and is somewhat of a surprise after the earlier reported.”

Adding to the limp backdrop, the European recovery remains “creditless” as banks remain wary of lending to households and businesses.

Data out earlier today showed that the annual growth rate of loans to households edged up from 0.4 per cent to 0.5 per cent, while lending to companies fell at a somewhat more sedate rate of -2.5 per cent.

Mr van Vliet added: “This shows that the underlying dynamics in bank lending to the private sector remain very weak.

“To be sure, the latest bank lending survey suggests that the improved economic outlook across the eurozone may be starting to feed through into stronger loan demand. But this is not yet showing up clearly in the actual lending data.”