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Euro zone inflation falling off

In one of the rare pieces of welcome information to be released by the Euro zone, it was today revealed that inflation in June fell back to 1.4% from 1.6% in May. Analysts had predicted the rate would fall back to around 1.5% so many are relieved to see that pressure on prices would appear to be subdued. So what does this mean for the Euro zone economy?

Inflation is a problem in areas such as the UK where the rate recently peaked at 3.9% but is forecast to pull back to around 2% in due course. The very fact that inflation in the euro zone is far more subdued is a welcome sign and should allow EU strategists to focus wholly upon money supply and liquidity in the Euro zone, without the additional problem of runaway inflation.

However, there is growing concern that liquidity in the European marketplace is being squeezed and yesterday's decision by the European Central Bank to remove its short-term liquidity program was not well received. Concern and uncertainty in the European markets are never welcome, but at this moment in time with a fragile recovery underway, fears are greater than ever before. While those who have predicted an end to the Euro zone may be well wide of the mark, there is no doubt that further problems and challenges do lay ahead.

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