UPDATE 1-Euro zone May inflation edges higher, seen subdued

(Recasts with economists’ comments)

By Jan Strupczewski

BRUSSELS, June 16 (BestGrowthStock) – More expensive energy drove
annual inflation in the euro zone up slightly to 1.6 percent in
May as expected and wage growth acclerated in the first quarter,
data showed on Wednesday, but underlying inflation pressures
remained low.

Consumer prices in the 16-country bloc rose 0.1 percent
month-on-month and 1.6 percent year-on-year, European Union
statistics office Eurostat said on Wednesday. That was in line
with market expectations and up from a 1.5 percent annual
increase in April.

For full data see:

“There is no inflationary threat on the horizon,” said
Clemente de Lucia, economist at BNP Paribas.

“While the depreciation of the euro is expected to fuel
import prices, domestic pressures are muted. Core inflation
(which excludes the most volatile components of the HICP and
which is more related to domestic price developments) should
resume trending down soon,” he said.

What the European Central Bank calls core inflation, which
does not include volatile prices of energy and unprocessed food,
stood at 0.1 percent month-on-month and 0.9 percent year-on-year
in May.

The ECB wants to keep inflation just below 2 percent over
the medium term and watches the core number to gauge underlying
inflationary pressures.

Economists expect the bank to keep interest rates, now at a
record low of 1 percent, on hold until 2011 as the economic
recovery is still fragile.

“Underlying inflationary pressures continue to be held down
by still significant output gaps across the region and only
gradual recovery, muted capacity utilisation, and wage
moderation amid high and still rising unemployment,” said Howard
Archer, economist at IHS Global Insight.

Eurostat said nominal hourly labour costs, adjusted for the
number of working days, rose 2.1 percent year-on-year in the
first quarter of 2010 after a 1.7 percent gain in the last three
months of 2009.

For full data see:

Of the total, wages grew by 2.0 percent year-on-year after a
1.6 percent expansion in the previous quarter and non-wage
labour costs rose 2.1 percent, up from 2.0 percent.

Wage growth in Germany, known for its cost restraint, was
1.0 percent in the January-March period after a 0.3 percent
year-on-year fall in the previous three months.

Among countries whose competitiveness is under market
scrutiny, Spain’s wage growth continued at a brisk pace, rising
2.7 percent in the first quarter from a year earlier.

Data for the first quarter in Greece was not yet available,
but wages there grew by 4.1 percent year-on-year in the final
quarter of 2009.

In Portugal, wages froze in the first quarter after a 3.1
percent rise in the fourth quarter of 2009.

Investing Research
(Reporting by Jan Strupczewski; Editing by Dale Hudson and
Susan Fenton)

UPDATE 1-Euro zone May inflation edges higher, seen subdued