* Consumer price inflation at 2.4 pct, same as in May
* Oil price drop offers space for rate cuts
* Majority of economists see rate cut on July 5 meeting
By Robin Emmott
BRUSSELS, June 29 Euro zone inflation held
steady at a 16-month low in June, kept in check by a sharp fall
in oil prices and supporting an already strong case for a
near-term interest rate cut by the European Central Bank.
Consumer prices in the 17 countries sharing the euro rose
2.4 percent year on year in June, EU statistics office Eurostat
said on Friday, the same rate as in May and as expected by
economists in a Reuters poll.
The ECB left rates at a record low of 1 percent earlier this
month. But many economists expect it to cut borrowing costs at
its July 5 meeting, taking place against a darkening economic
backdrop and after EU leaders agreed new crisis measures
overnight to tackle the region's debt crisis.
"There is no obstacle to an ECB rate cut from the side of
inflation," said Christoph Weil, an economist at Commerzbank,
who expects a cut next Thursday.
A Reuters poll showed that 48 out of 71 economists expect
the ECB to cut rates, in theory making it cheaper for the euro
zone hard-pressed households and firms to borrow.
ECB President Mario Draghi has so far argued that it is up
to governments - not the bank - to take steps to help calm the
crisis that has intensified in recent weeks as Spain and Cyprus
have become the fourth and fifth countries to seek a European
But the pressure appeared to be back on the ECB after euro
zone leaders agreed in the early hours of Friday to take action
to try to bring down Italy and Spain's borrowing costs and to
create a single supervisory body for euro zone banks.
Data also showed on Friday that loans to euro zone
households and companies shrank in May as banks have tightened
credit requirements, meaning less money is easily available to
revive the depressed economy.
"The monetary data released earlier today by the ECB...
reinforce the view of moderate inflation over the medium term,"
said Martin van Vliet at ING.
"The prospect of moderate inflation allows the ECB room for
manoeuvre to cut its main policy rate further."
Another, less likely option for the ECB would be to provide
more cheap long-term refinancing operations (LTROs), repeating a
two-stage move that calmed markets early this year with over a
trillion euros in loans.
OIL AT $90 A BARREL
An interest rate cut would not on its own do much for the
economy, which only narrowly avoided sinking into recession in
the first three months of this year, but the weak economy in
turn ensures hidden inflation dangers are minimised.
"Sluggish economic prospects will limit wage, cost and price
pressures," said Clemente de Lucia at BNP Paribas. "The
unemployment rate has reached its highest level since the launch
of the euro and, under the current economic environment, labour
market conditions will continue to deteriorate."
After months of unexpectedly high consumer price pressures
at a time when euro zone economies were stagnating, inflation
dropped from 2.6 percent in April as world oil prices fell.
In an abrupt change of course, Brent crude - trading
above $120 a barrel earlier this year - is now just above $90
and on track for its worst quarterly performance since the 2008
Concerns among businesses and investors that the euro zone's
2-1/2 year debt crisis is no closer to any lasting resolution
has started to eat away at the resilience of the U.S. and
Chinese economies, stifling global growth and hitting oil.
"A rate cut will not prevent a deep recession in the euro
zone," said Ben May, an economist at Capital Economics. "After
all, the drop in the oil price is probably largely as a result
of the recent run of weak global economic data and growing fears
that Spain requires a full sovereign bailout."