Eurozone remains in a feeble state

Eurozone inflation remained stuck at levels last seen during the 2009 recession and lending to companies and households contracted again, data showed yesterday, further highlighting the bloc’s feeble economic state.

The reports – for June and May, respectively – underlined the reason for the European Central Bank’s unprecedented policy steps earlier in June when it cut interest rates to record lows and promised to hand out more long-term loans to encourage banks to lend more freely.

It will take a while for the measures to take effect and they would not have influenced yesterday’s releases. Details have not yet been announced for the long-term loans and most economists do not expect any fresh policy steps when the ECB meets on Thursday.

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But there is no sign that the pressure on the ECB is easing.

“The ECB has just announced new measures to signal its readiness to bring inflation back to target and boost lending, but it will surely keep the door wide open to more measures at this week’s meeting,” said Berenberg Bank’s Christian Schulz.

Annual eurozone inflation stayed at 0.5 per cent in June compared with last month, the European Union’s statistics office Eurostat said.

Core annual inflation – excluding energy, food, alcohol and tobacco – inched up to 0.8 per cent.