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May 29, 2020, 5:45 a.m. EDT

Eurozone inflation drops to near 4-year low in May

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By Paul Hannon

Eurozone consumer prices rose at the slowest pace in almost four years in the year to May as energy prices tumbled.

The European Union's statistics agency Friday said consumer prices were just 0.1% higher than a year earlier, the smallest increase since June 2016. That marked a decline in the annual rate of inflation from 0.3% in April, and 1.4% in January, the month before governments began to impose restrictions on movement and social interaction designed to limit the spread of the novel coronavirus.

The main driver behind the collapse in inflation over the past four months has been energy prices, which were 12% lower in May than a year earlier. Core inflation--which excludes volatile items such as energy--has fallen much less sharply, to 0.9% in May from 1.1% in January.

With the eurozone economy set to contract sharply this year, the European Central Bank is expected to expand its bond buying program when its governing council meets on June 4. On the same day, the ECB will release new forecasts for inflation. Its most recent forecast, published in March, saw inflation at 1.1% this year, 1.4% in 2021 and 1.6% in 2022. Its new forecasts are likely to be lower.

Separately, the ECB said lending to households slowed in April, but lending to businesses picked up, a sign that many have used borrowed funds to stay afloat during the lockdowns.

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

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