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."
Dollar strength and waning investor confidence are driving the lira lower
Greece has already received two bailouts totalling 240 billion euros but fellow euro zone member Ireland said last week that it would have to negotiate a third programme.
The Ukraine crisis has tested the loyalties of Bulgaria, a Balkan country with historical ties to Moscow and heavily dependent on Russian energy supplies.
Syria expels three United Nations aid workers hindering aid development in the country
Russia has overcome a "psychological barrier" and is ready to deepen its economic ties with China, Deputy Prime MinisterArkady Dvorkovich said
With Chancellor Angela Merkel's right-left coalition plus the opposition Greens, it was the biggest majority for any euro zone rescue package so far in the 631-seat chamber.
The agreement commits Tanzania, Kenya, Uganda, Rwanda and Burundi to cooperate with the United States in customs issues, ease red tape at borders, reduce customs wait times and harmonize trade standards.
Sri Lankan President Maithripala Sirisena has unnerved China with his re-examination of certain projects that Chinahas invested in, including a $1.5 billion "port city" project in Colombo.
EU energy chief Maros Sefcovic invited Russian Energy Minister Alexander Novak and his Ukrainian counterpart Volodymyr Demchyshyn for talks
Gazprom and Ukrainian state energy firm Naftogaz have accused each other of not sticking to agreements on gas supplies.
The new canal, that will allow two-way traffic of larger ships, is supposed to increase revenues by 2023 to $13 billion.
A day after euro zone finance ministers agreed to a four-month extension of a financial rescue, Finance Minister Yanis Varoufakis gave a frank assessment of Greece's financial position.
The agreement is the culmination of talks that began in September after the government decided its own solutions to its fiscal crisis were failing to convince investors.
Energy union highlights bloc's attempt to seek independency from its main gas supplier - Russia.
Merkel's right-left coalition is set to prevail, despite vocal pockets of resistance on the right and left.
Republicans passed the bill to increase pressure on Obama to approve the pipeline, a move the president said would bypass a State Department process that will determine whether the project is in the U.S. national interest.