Eurozone remains in deflation at 0.1%, says Eurostat

The eurozone remained in deflation in May as consumer prices fell 0.1%, according to Eurostat on Thursday.

The European Union’s statistical office said the eurozone’s annual inflation was down 0.1% in May, up slightly from the previous month's 0.2% year-on-year fall.

Eurostat said consumer prices continued to be weigh down by low energy costs in May, as heating oil and gas, and transport fuel fell.

Within the European Union, Romania experienced the highest deflation at 3%, followed by Bulgaria at 2.5% and Cyprus, a member of the eurozone, at 1.9%.

Belgium, part of the single currency area, had the highest inflation at 1.6% followed by Malta at 1% and Sweden 0.8%.

The eurozone is struggling to rid itself of low inflation despite monetary stimulus from the European Central Bank (ECB). The ECB’s inflation target is just below 2%.

ECB president Mario Draghi said on the 2 June that he expected rates to remain low or negative in the next few months before becoming higher the last half of 2016. The ECB’s governing council decided to hold benchmark interest at 0% and deposit rate at -0.4%.

Draghi said: "Supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further in 2017 and 2018."

Dennis de Jong, managing director at UFX.com, said the continued deflation in May was not surprising as consumer confidence remains subdued ahead of Britain's EU referendum on 23 June.

“Given the palpable uncertainty, ECB President Mario Draghi might be forgiven for overseeing another set of deflationary year-on-year figures," he said.

“But with the referendum just a week away, the pressure will be on to deliver the growth he has promised in the second half the year – regardless of Thursday’s result."