World Bulletin / News Desk
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 rescue.
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 financial crisis.
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."
European stock markets are also set for a weak start, with Italy underperforming as investors brace for turbulence and political crisis in the euro zone's heavily indebted third-largest economy.
The euro tumbled on Monday after Italian Prime Minister Matteo Renzi said he would resign as he conceded defeat in a referendum over his plan to reform the constitution
Rouhani's 2017-2018 budget is based on oil prices of $50 per barrel, up from $40 last year, with a focus on unemployment, water resources, railways and the environment.
Turkish parliament has already ratified the deal on construction of ‘TurkStream’ natural gas pipeline
The September rate was revised to 9.9 percent from the 10 percent first given last month.
Many analysts had expected the producers' cartel to fail to reach a deal as major players like Iran, Iraq and Saudi Arabia remained divided ahead of the meeting.
The report, which collects views of economists, business contacts and others in the 12 Federal Reserve districts in preparation for the monetary policy meeting next month, noted improved retail sales and home construction in most regions.
If the cartel does not reach a deal to cut output, prices could fall below $40 a barrel
European air travel giant Lufthansa has been battling its own pilots over pay and conditions for more than two years.
Failure to get an accord on Wednesday could send oil prices tumbling and deal a further blow to the credibility of the 56-year-old Organization of the Petroleum Exporting Countries.
Around midday, shares in Italian lenders Unicredit and Banco Popolare were down 4 percent compared with Friday's closing levels.
Officials on Friday's said the tie-up between the Hong Kong and Shenzhen markets will start on December 5.
The announcement comes as the country is gearing up for a key election next year, with the parties in Chancellor Angela Merkel's grand right-left coalition keen to woo ageing voters.
The weak inflation data -- core prices excluding fresh food fell 0.4 percent from a year ago -- come several weeks after Japan's central bank pushed back the timeline for hitting its 2.0 percent inflation target.
Roberto Azevedo says he is 'ready to talk' to US President-elect who has promised to pull US out of other trade agreements