Eurozone Inflation at New High

Official figures today revealed economic growth in the 19 countries comprising of the Eurozone falling by 50% in the second quarter of 2016, this is most likely the result of the fading bolster it had earlier received from the fall in oil prices and the weakness in the euro, as it does not look like the impact of the UK referendum on the EU.

The European Union’s statistics agency, stated on Friday that economic growth across all EU countries slowed to a quarterly rate of 0.3% from the previous 0.6% reported in the first quarter. This slump was fully expected by market participants.

The reading generated by Eurostat, is only above the analysts forecast by 0.1%, and is a well-received sign of growing inflationary pressure in the Eurozone after the EU had in June narrowly escaped four months of a deflationary atmosphere.

Besides the fall of energy prices by 6.6% against the 6.4% witnessed in June, other prices have been raised by alcohol, food and tobacco which grew by 1.4% this month, it was closely joined by a 1.2% leap in services.

A measure of core inflation which is closely monitored by central bankers and also discards the volatile elements like energy maintained its previous value in July at 0.9%, despite analysts’ forecasts that it will fall to 0.8%. This global figure comes in the wake of the strong 0.4% growth in consumer prices that was reported in France and Germany.

The European Central Bank President Mario Draghi last week hinted that the policy makers would be open to making further stimulus available in the situation that the Brexit proves to be a barrier against their efforts to raise inflation, he also noted that it was too early to know if that would be the case.

With the ECB’s target inflation rate set at 2%, the figures shown at the launch of the ECB’s first stimulus packages in June 2014 were as far away from hitting its inflation target as the figures that were released on Friday. Eurostat also noted that consumer prices in July was just 0.2% greater than it was in July 2015, with June recording a small uptick from 0.1% rate of inflation.

The European Union slowdown was mostly fuelled by a lower than expected performance in France, the country which happens to be the second largest in the union then reversed its role in the second quarter to give the EU a boost.

The EU’s growth was halted in the 3 months preceding June, after it had grown 0.7% quarter on quarter in the three months before march, Economists polled by The Wall Street Journal had expected a 0.2% quarter-on-quarter expansion. “Economists polled by The Wall Street Journal had expected a 0.2% quarter-on-quarter expansion”, national statistics agency Insee said.

Stronger investment and consumer expenses and in France were key motivators in the first quarter. And in the following quarter, the French economy was dragged in two different directions, as they hosted the biggest football tournament in Europe while they experienced extensive periods of strikes over labour laws.