Euro Area: Inflation falls more than expected in June
Harmonized inflation fell in June more than market had expected, decreasing to 5.5% from May’s 6.1% reading. It represents the lowest inflation since the start of 2022. As a result, inflation moved closer to the European Central Bank’s target rate of 2.0%.
June’s result was due to a sharper fall in prices for energy, as well as to softer increases in prices for non-energy industrial goods and food, alcohol and tobacco. On the flipside, prices for services increased at a faster pace. Meanwhile, the annual rate of core inflation—which excludes volatile energy and unprocessed foods prices—declined to 6.8% in June from May’s 6.9%.
On a monthly basis, harmonized consumer rose 0.3% in June, accelerating from May’s flat reading.
Commenting on the outlook, Bert Colijn, senior economist at ING, stated:
“While the improving inflation environment will be encouraging for the ECB, the message coming out of Sintra this week has been pretty clear: there’s more work to be done. The ECB thinks it is more costly to do too little in terms of hikes than to do too much, which means that we expect the ECB to continue hiking in July and September. By then, the blurring base effects from government support should largely have faded, which means that a pause will become likely..”