This is good news for oil.
ECB has always expect higher poo which will contribute a fraction to Europe inflation but the data is disappointed.
I think ECB needs to deliver more QE rather than an interest rate cut because ECB had said that they won't cut rate futher in which the rate has already in negative territory. That'll hurt its banks.
The only way is to increase more QEs
Europe’s Inflation Remains Below Target
May 31st, 2016 5:44 am
Via Bloomberg:
May 31, 2016 — 5:00 AM EDT
Euro-area consumer prices failed to increase for a fourth consecutive month, highlighting policy makers’ struggle to stoke inflation despite multiple rounds of stimulus.
Prices fell 0.1 percent in May from a year earlier, the European Union’s statistics office in Luxembourg said on Tuesday. That’s in line with the median estimate in a Bloomberg survey of economists and follows a drop of minus 0.2 percent in April. The unemployment rate held at 10.2 percent last month, according to a separate Eurostat release.
The European Central Bank, led by Mario Draghi, has been battling for the past three years to bring inflation in line with its mandate, cutting interest rates below zero and buying a raft of securities including sovereign bonds. Even with the economy slowly improving, consumer-price growth remains far away from the ECB’s goal of just under 2 percent, raising the question of whether extraordinary stimulus is losing its effectiveness.
“Inflation is way below the objective, so the ECB will keep the door for more easing open,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. “It will not be easy for Draghi to choose the right words, he has to keep the easing fantasy alive but he has to say that growth is OK — not in every country, but on average it’s OK.”
ECB Meeting
The ECB’s next interest-rate decision will be announced on Thursday, and economists predict policy will remain unchanged after a fresh round of stimulus in March that included interest-rate cuts and a bump of 240 billion euros ($267 billion) to the bond-buying program. Draghi will hold a press conference in Vienna, where officials gather for one of their regular out-of-Frankfurt sessions.
The Eurostat reports follow data on Monday showing that economic confidence within the 19-country bloc rose for a second month in May, with sentiment improving among consumers, as well as in retailing and in construction.
While most economists in Bloomberg’s monthly survey predict the central bank’s forecasts for inflation and growth will be left unchanged or increased at this week’s meeting, they also see the relief as short-lived: Two thirds predict Draghi will eventually need to announce yet more stimulus.
Personally Optimistic
That view stands in contrast to Vice President Victor Constancio’s more optimistic stance. He said that he “certainly personally expects” consumer-price growth to be near the ECB’s goal of just under 2 percent in two years time.
In March, the ECB forecast euro-area growth of 1.4 percent this year, 1.7 percent in 2017 and 1.8 percent in 2018, with inflation of 0.1 percent, 1.3 percent and 1.6 percent, respectively.
“We will have several months of very low, and sometimes negative, headline inflation,” Constancio said in an interview with Bloomberg Television on May 24. “That will start to change in the last quarter of this year and I am very confident that the forecast that next year we will be above 1 percent will materialize, and certainly then will continue to increase for 2018.”
In May, core inflation, which strips out volatile elements such as food and energy, accelerated to 0.8 percent from 0.7 percent in April, the Eurostat data showed.
The inflation rate in Spain held steady at minus 1.1 percent this month, data released on Monday showed. In Germany, the region’s biggest economy, a slide in consumer prices unexpectedly halted.
“The ECB can say that, while it is very early days, its March stimulus package may be contributing a little to the resilience of euro-zone domestic demand,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Without ruling out a further stimulus, that will make it easy for the ECB to stay on the sidelines for the foreseeable future.”
(20min delay)