Eurozone inflation eased in June, as lower price pressures in services and basic components offset still-high energy costs. Eurostat confirmed that annual consumer price inflation slowed to 2.8% from 3.2% in May, while inflation in the European Union fell to 2.9% from 3.3%. Inflation fell in 22 member states, highlighting that the recent improvement was broadly shared across the region and not driven by isolated national developments.
The composition of inflation provided further encouragement to policy makers. In the euro area, services inflation fell from 3.5% to 3.2%, while core inflation excluding energy slowed from 2.4% to 2.2%. The index, which excludes energy, food, alcohol and tobacco, also fell from 2.6% to 2.4%, indicating a decline in underlying price pressures. Food inflation added to the deflationary trend, with the food, alcohol and tobacco category slowing from 1.9% to 1.5%.
However, energy remains the main obstacle to a full return to price stability. Annual energy inflation fell to 8.5% from 10.8%, supported by a -1.8% monthly decline in energy prices, but still represents 0.77 percentage points of overall inflation. Although the latest figures reinforce the view that domestic inflation pressures are gradually beginning to ease, the ECB is unlikely to declare victory in light of geopolitical risks that continue to threaten renewed volatility in energy markets. Continued moderation in services and core inflation will be key if inflation is to return sustainably to the central bank’s 2% target.
Economic data
| index | actual | expected | former |
|---|---|---|---|
| Title HICP on an annual basis | 2.8% | 2.8% | 3.2% |
| HICP Headline Monthly | -0.1% | -0.1% | 0.0% |
| Underlying HICP index (eg energy) on an annual basis | 2.2% | — | 2.4% |
| Core HICP index (e.g. energy, food, alcohol and tobacco) annually | 2.4% | — | 2.6% |
| Inflation in services on an annual basis | 3.2% | — | 3.5% |
| Energy inflation on an annual basis | 8.5% | — | 10.8% |
Key takeaways
- HICP address slowed down 3.2% to 2.8%which is consistent with the initial estimate and confirms the decline in inflation in June.
- Core inflation continued to moderate, with HICP excluding power slowing down from 2.4% to 2.2%while the narrower basic scale declined from 2.6% to 2.4%.
- Services inflation, which the European Central Bank is closely monitoring, has slowed 3.5% to 3.2%Which indicates that domestic price pressures are gradually easing.
- Food, alcohol and tobacco inflation slowed further 1.9% to 1.5%This increases the broad deflation trend.
- Energy inflation remained high at 8.5%Although it was tempered 10.8% With lower monthly energy prices -1.8%.
- Inflation decreased 22 of the 27 member states of the European UnionWhich suggests that moderation was broad rather than country-specific.
- The report supports the view that core inflation is slowing, but persistent energy risks mean the ECB is likely to seek further confirmation before it becomes more confident that inflation is sustainably returning to its 2% target.
