Eurozone economy stuck, inflation figures show

Historic cash injections by the European Central Bank (ECB) have so far failed to jumpstart consumer prices in the 19 nations sharing the euro, as inflation slowed to just 0.2 percent year-on-year in June, compared to 0.3 percent the month before.

Volatile energy prices, down by 5.1 percent relative to June 2014, proved the biggest drag on the ECB's ambition of lifting inflation to just under 2 percent, the European Union's statistics office Eurostat said on Tuesday. However, some of that negative growth was mitigated by a 1.2-percent hike in food and beverage prices.

"June's data reinforce [the] belief that it is likely to prove a hard slog to get eurozone consumer price inflation back up to the ECB's target rate of close to, but just below 2 percent," said Howard Archer, chief European economist at IHS Global Insight.

"This will especially be the case if events in Greece end up having a major dampening impact on eurozone economic activity, which we doubt will happen - although it certainly cannot be ruled out," he said, amid fears that the debt-ridden nation could drop out of the currency union following a potential default on its debt.

Teunis Brosens, a eurozone economist at ING, also pointed to a 0.4-percent increase in prices for industrial goods - double the rate in May - as a possible sign that the weaker euro was having a negative impact on imports.

Meanwhile, unemployment in the bloc remained stable at 11.1 percent in May compared with the month before, marking one of Tuesday's few bright spots.

2016 turnaround

The bleak report is likely to whet economists' fears that deflation could return to the eurozone, which suffered four months of negative growth earlier this year. This prompted the ECB to launch a controversial 1-trillion-euro bond-buying program in hopes of stimulating the eurozone economy.

Earlier this month, the ECB said it expected annual inflation in the eurozone to remain low at 0.3 percent this year, before shooting up to 1.5 percent in 2016 and 1.8 in 2017.

Brosens shared the bank's optimism, saying the slowdown is "nothing to worry about."

"Normalization of inflation is still far away, but at least the eurozone has started the journey," he said.

pad/jr (AFP, dpa, Reuters)