May flash: +2.4% y/y

MNI survey median: +2.5% y/y
MNI survey range: +1.9% to +2.6% y/y

April final: +2.6% y/y

FRANKFURT (MNI) – Eurozone inflation surprised to the downside,
falling to a 15-month low of 2.4% in May, Eurostat reported on
Thursday.

A detailed breakdown of the inflation figure, which suggests
a 0.2% dip on the month, will be published on June 14.

Preliminary estimates for Germany showed consumer price inflation
slowing to a 14-month low in EU harmonized terms and below 2% in
national terms for the first time since 2010. Data from reporting German
states showed lower rates for petrol and oil products.

Brent crude prices have been on a downward trend since breaching
the $130/a barrel level in early March, reaching seven-month lows
earlier this week before parring back some losses.

In its latest Oil Market Report, the International Energy Agency
revised up slightly its oil demand forecasts, but downplayed the
resulting “marginally tighter picture” in the market, noting how OPEC
had filled the gap.

“But there is no room for complacency,” the IEA cautioned. “The
path of market fundamentals for the rest of the year remains highly
uncertain and geo-political risks will likely continue to keep prices
high.”

Pipeline price pressures appear to be waning. May’s PMI polls
showed input prices slowing and output prices declining slightly for the
second month in a row.

“Inflationary pressures eased during the month, but this largely
reflected price discounting due to the weakness of demand,” said Markit
Chief Economist Chris Williamson said in the PMI press release. “Company
profits are therefore coming under increased pressure.”

The downward trend in selling price expectations across all major
sectors also continued this month, with a higher-than-average proportion
of firms looking to cut prices in the near term, the European Commission
reported. The proportion of consumers expecting prices to trend higher
was revised downwards as well, though the share remains above average.

The Commission’s latest forecasts see inflation averaging +2.4%
this year and slowing to +1.8% in 2013. Results from the European
Central Bank’s most recent Survey of Professional Forecasters are
broadly comparable, with inflation at +2.3% and +1.8%, respectively,
this year and next.

The ECB is scheduled to release its staff’s latest projections for
HICP next week. The most recent forecasts show inflation between +2.1%
and +2.7% this year and between +0.9% and +2.3% next year.

— Frankfurt bureau, +49-69-720 142; email: frankfurt@marketnews.com —

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