Eurozone Inflation Rate Falls Sharply

The eurozone's annual rate of inflation fell more sharply than expected in May despite a drop in the jobless rate to a seven-year low, a combination that is likely to reinforce the European Central Bank's reluctance to quickly unwind its stimulus programs.

A surge in inflation earlier this year brought with it more forceful calls from Germany and the Netherlands for an end to negative interest rates and massive bond purchases.

ECB policy makers responded by expressing doubts about the sustainability of that higher inflation. They believe that consumer prices will only rise steadily if the gap between what the eurozone economy can produce and what it is producing is much narrower than it is now. The most obvious example of that slack is the eurozone's very high unemployment rate, which is more than double its U.S. equivalent.

Figures released Wednesday appear to justify their caution. The European Union's statistics agency said consumer prices were 1.4% higher in May than a year earlier, a decline in the inflation rate from 1.9% in April, when it was in line with the ECB's target. That is the lowest inflation rate recorded this year, and below the 1.5% forecast by economists.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

May 31, 2017 05:14 ET (09:14 GMT)