Bloomberg News

Euro-Area Inflation Held Steady in June, Imports Fell in May

July 16, 2012

European inflation held steady last month and imports decreased in May as the euro-area economy edged toward its second recession in three years.

The inflation rate in the 17-nation euro area remained at 2.4 percent, the same as in May, the European Union’s statistics office in Luxembourg said, confirming an initial estimate published on June 29. Euro-area imports fell a seasonally adjusted 0.9 percent from April, while exports grew 0.3 percent, a separate report showed.

Companies are cutting costs and eliminating jobs as the region’s economic slump deepens. PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, said on July 12 it will cut 14,000 positions to stem losses and the European Central Bank earlier this month lowered borrowing costs to a record low, saying some risks to the economic outlook have materialized while inflationary pressure “has been dampened further.”

At least seven euro-member states are in recession and Germany’s economy, which helped stem a region-wide contraction in the first quarter, is also cooling. Services and manufacturing output shrank in June for a fifth month and German business confidence fell to the lowest in more than two years.

With economies around the globe faltering, energy costs have been pushed lower. Crude oil prices have declined more than 12 percent this year, easing inflationary pressures across the euro area and giving the ECB room to lower borrowing costs to bolster the economy and encourage lending.

‘Long-Term Growth’

“The ECB can’t really make up for the fact that the euro area doesn’t have any long-term growth plan at all,” David Blanchflower, a professor at Dartmouth College, told Tom Keene on Bloomberg Television’s “Surveillance” on July 12. “Growth really is the long-term problem.”

The Frankfurt-based ECB said in its monthly report on July 12 that “inflationary pressure over the policy-relevant horizon has been damped further as some of the previously identified downside risks to the euro-area growth outlook have materialized.” The central bank in June forecast inflation at 2.4 percent and 1.6 percent this year and next.

Adding to easing price pressures, euro-area core inflation, which excludes volatile costs such as energy, remained steady at 1.6 percent in June, today’s report showed. Producer-price inflation slowed to 2.3 percent in May from 2.6 percent.

Peugeot Job Cuts

Europe’s worsening economic slump is leaving companies with little room to raise prices, forcing them to rely on job cuts instead. The region’s unemployment rose to 11.1 percent in May, a record, with Spain’s jobless rate at 24.6 percent.

Peugeot said last week it will cut an additional 8,000 positions in the current reorganization, on top of 6,000 job reductions already announced last year, to stem widening operating losses. It will also close a plant in France and reduce production at another to lower operational costs.

“I am fully aware of the seriousness of today’s announcement,” Chairman Philippe Varin said in a statement. “The depth and persistence of the crisis impacting our business in Europe have now made this reorganization” indispensable.

To contact the reporter on this story: Simone Meier in Zurich at

To contact the editor responsible for this story: Craig Stirling at

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