Roundup: Eurozone inflation rises slightly but still negative in May

The inflation in the 19-country eurozone was expected to be at minus 0.1 percent in May, official data showed on Tuesday, slightly up from the minus 0.2 percent in the previous month.

Looking at the main components of eurozone's inflation, services was expected to have the highest annual rate in May at 1 percent, followed by food, alcohol and tobacco at 0.8 percent, said Eurostat, the statistics agency of the European Union.

Although the energy prices continued to drag inflation, the recent rise in oil prices during the month contributed to the upward momentum, according to the agency.

Core inflation, excluding energy, food, tobacco and alcohol, stood at 0.8 percent, up from 0.7 percent the previous month, data showed.

Economists argued that May's reading stood weaker than expectations but forecast the inflation to climb over in the coming months unless oil prices drop back sharply. The bloc was predicted to get out of deflation in the second half of this year.

The inflation in the single currency bloc unexpectedly fell into negative territory in February and stood at zero in March, raising concerns on the effectiveness of the bloc's stimulus efforts.

The bloc's central bank, which closely monitors the inflation index, is set to hold a governing council meeting in Vienna on Thursday. It is widely expected that the bank will keep monetary policy on hold as it still awaits the outcome of the latest round of stimulus measures unveiled in March.

On March 10, the European Central Bank (ECB) decided to implement further monetary stimulus measures including cutting the three key interest rates, expanding its monthly purchase of assets by 20 billion euros (22.31 billion U.S. dollars) to 80 billion euros.

The bank also brought investment grade euro-denominated bonds issued by non-bank corporations into the asset purchase program, as well as conducted a new series of targeted longer-term refinancing operations.

It lowered the interest rate on the deposit facility by 10 basis points to minus 0.3 percent in December last year, a follow-up move after it launched a massive trillion-euro asset purchases program, dubbed as quantitative easing, at the start of last year in a bid to achieve the medium inflation target at "below, but close to 2 percent."

Joshua Mahony, market analyst at IG, warned that the fact that eurozone remained within deflation was a clear heads up that monetary policy alone cannot fix the problem of stagnant price growth.

In a separate report, Eurostat said the jobless rate in the eurozone was 10.2 percent in April, the lowest since August 2011. In the wider 28-country EU, the unemployment rate was at 8.7 percent in April.

"The latest figures on eurozone inflation and unemployment maintained the picture of subdued price pressures across the region," said Jonathan Loynes, chief European economist at Capital Economics.

The bloc's economy is still growing too slowly to use up the slack in the labor market and hence put meaningful upward pressure on inflation, Loynes said. "The ECB therefore has more work to do."

Earlier this month, the European Commission, the EU's executive body, further lowered its forecast for economic growth across the eurozone and the EU, while insisting Europe's economic recovery was staying the course amid high risks.

The real gross domestic product (GDP) in 2016 was expected to rise 1.6 percent in the EU and 1.8 percent in the euro area, both 0.1 percentage points lower than projected three months ago.

The commission forecast inflation in the eurozone would stand at 0.2 percent in 2016 and 1.4 percent in 2017. It also warned that risks associated with domestic EU developments remained considerable, with regards to the pace of implementation of structural reforms and the uncertainty ahead of Britain's EU referendum. Enditem