Euro zone price pressures at 26-month low in May: ECRI

BANGALORE Fri Jul 6, 2012 3:36am EDT

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BANGALORE (Reuters) - Inflationary pressures in the euro zone fell to a 26-month low in May, easing in each of its four biggest economies, according to an indicator designed to predict cyclical inflation trends.

The future inflation gauge for Germany, France, Italy and Spain fell in May, pushing the Eurozone Future Inflation Gauge (EZFIG) to 94.9 from 95.4 in April, the Economic Cycle Research Institute (ECRI) said on Friday.

"The EZFIG dropped to a 26-month low in May, due to declining inflation pressures in the major euro zone economies," said Lakshman Achuthan, ECRI's chief operating officer.

"Thus, euro zone inflation is likely to lessen further."

Headline inflation in the euro zone held steady at a 16-month low of 2.4 percent in June, according to preliminary data.

While inflation remains above the central bank's target of just below 2 percent, it has been sliding in recent months and ECB staff expect it to average 1.6 percent next year.

That, coupled with growing signs of a deterioration in the euro zone economy prompted the European Central Bank to cut interest rates to a record low on Thursday.

The quarter-point cut in the ECB's main refinancing rate to 0.75 percent was in line with expectations in a Reuters poll and followed a dire batch of economic data that showed even the bloc's powerhouse, Germany, is entering a modest economic downturn.

(Reporting by Rahul Karunakar; editing by Ron Askew)

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