Eurozone’s May inflation lowest since 1997

Eurozone annual inflation plunged to 0 per cent in May, with consumer prices stopping to rise in the 16-European economies, recording the lowest rate since 1997, according to a flash estimate issued by Eurostat, the Statistical Office of the European Communities.

Eurozone's inflation had maintained a record low of 0.6 per cent in April, Eurostat said. Eurostat will release a detailed breakdown of the final figures on 16 June.

Euro zone inflation reached a record high of 4 per cent in June and July 2008 and the global economic recession saw a sharp fall in oil and other commodity prices.

Many analysts now expect Eurozone to see deflation in June, which may continue for a few months due to the comparison with last year, when oil prices touched a peak of $147 a barrel in July and then the broader economy will start to become steady.

Belgium's monthly inflation dropped 0.37 per cent, according to the data released yesterday. It too joined countries like Germany, Portugal, Spain and Ireland who saw a fall in consumer prices on account of the global recession.

Inflation in Germany, Europe's biggest economy, turned negative for the first time in 22 years in May compared to the same month last year. (See: Germany's May inflation turns negative for first time in 22 years)

Many countries such as Japan , India have seen unexpected rise in retails sales in the month of April and a slightly better figure in May. Similarly, April retail sales in Germany saw unanticipated rise, according to official data.

Consumer spending in Germany improved 0.5 per cent from the previous month indicating that Germany may be able to sustain itself, after the first quarter output plummeted.

Even, UK retail prices index plummeted into negative territory, registering a drop of 1.2 per cent in the year to April. (See: Inflation in UK falls to lowest since 1948)

The eurozone countries undergoing deflation are steadily increasing and analyst are not confident that these countries can weather the decline in consumer spending resulting in consumer prices turning negative in June.

The next month data to be released by Eurostat will give a more comprehensive view, as the May data reflects the slackening in food and oil prices on a year-on-year basis.

Deflation puts a dent on the country's economy as consumers tighten their purse strings, resulting in industrial production falling. The key to growth is healthy consumer spending to support economic progress.

Eurozone industrial production had its biggest ever fall on record in February, sinking 18.4 per cent on year-on-year basis (See: Eurozone industrial output slumps record low)