Headline inflation in the euro area fell to 2.5% in June, the European Union statistics agency said on Tuesday, while closely watched figures for the core and services sectors remained stable.
The headline number was in line with expectations from economists polled by Reuters. Inflation rose to 2.6% in May from 2.4% in April.
Core inflation, excluding the volatile impact of energy, food, alcohol and tobacco, remained at 2.9% month-on-month, narrowly missing the 2.8% forecast by economists.
The price increase rate in the services sector also remained unchanged at 4.1%.
Investors will now analyze what the latest data means for interest rates in the 20-nation euro zone after the European Central Bank made its first rate cut of 25 basis points in June.
Volatility in the consumer price index has long been expected this year as the energy market’s choppy base effects fade.
In June, energy inflation in the Eurozone stood at 0.2% year-on-year, a significant change from the beginning of the year when the sector had a strong disinflationary pull.
On Tuesday, ECB Vice President Luis de Guindos told CNBC’s Annette Weisbach that while the central bank is confident that inflation will move toward its 2% target, the coming months will be a “bumpy road” and there is no ” “predetermined path” gives monetary policy. He made the comments on the sidelines of the ECB Central Bank Forum in Sintra, Portugal.
According to LSEG pricing data, money markets see a high probability of two more interest rate cuts of 25 basis points each during the ECB’s remaining four meetings this year. They estimate the probability of a follow-up cut this month to be only 33%.
The euro, which has struggled in recent weeks under the shadow of the political risks of upcoming French elections, was slightly lower following the release of the data. As of 10:30 a.m. London time, it was down 0.2% against the U.S. dollar and 0.05% against the British pound.
Kyle Chapman, foreign exchange market analyst at Ballinger Group, said that aside from a slight slowdown in food prices – unprocessed food inflation fell to 1.4% from 1.8% – the latest consumer price index overall was a “virtual repeat of May data.” be.
“That is enough to trigger a pause at the ECB meeting this month. Persistent inflation in the services sector could become a real concern for policymakers, thwarting interest rate cuts, especially against a backdrop of rising wages and falling unemployment,” Chapman said in a note.
“There has been no concrete downward trend in services inflation this year and the ECB is unlikely to cut interest rates significantly until such a trend emerges.”
The interest rate outlook will depend on ECB staff’s quarterly macroeconomic forecasts and whether they rise, Chapman added.
In June, ECB staff increased their forecast for annual average headline inflation for 2024 from 2.3% to 2.5% and also raised their forecast for 2025 from 2% to 2.2%.
Correction: This article has been updated to more accurately reflect the increase in inflation from April to May.
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2024-07-02 12:08:57
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