Eurozone inflation fell to 2.5% in June, the European Union’s statistics agency said on Tuesday, in line with analysts’ expectations. Meanwhile, core inflation, which excludes the volatile effects of energy, food, alcohol and tobacco, held steady at 2.9% compared to the previous month, slightly below analysts’ expectations of 2.8%.
The European Union’s statistics agency said on Tuesday that headline inflation in the euro zone fell to 2.5% in June, in line with analysts’ expectations. Meanwhile, core inflation data and closely watched services data remained stable at 2.9% compared to the previous month, which was slightly lower than analysts’ expectations of 2.8%.
Euro zone inflation fell to 2.5% in June, the European Union’s statistics agency said on Tuesday, in line with expectations of economists polled by Reuters. Inflation rose from 2.4% in April to 2.6% in May
Core inflation, which excludes the volatile effects of energy, food, alcohol and tobacco, held steady at 2.9% from the previous month, slightly below economists’ expectations of 2.8%. The rate of increase in service prices also did not change, and stabilized at 4.1%.
It should be noted that monitoring this data is important for investors and policy makers, as it helps shape their expectations about future inflation trends and monetary policies. A decline or stability in energy prices may support the current directions of the European Central Bank in maintaining interest rates stability or adjusting them in line with changing economic conditions. In June, European Central Bank staff raised their forecast for average annual inflation for 2024 to 2.5% from 2.3%, and raised their forecast for 2025 to 2.2% from 2%.
Investors analyze the impact of recent data on the path of interest rates in the euro zone
Euro zone inflation fell to 2.5% in June, the European Union’s statistics agency said on Tuesday, in line with economists’ expectations. Inflation rose from 2.4% in April to 2.6% in May
Core inflation, which excludes the volatile effects of energy, food, alcohol and tobacco, held steady at 2.9% compared to the previous month, slightly below economists’ expectations of 2.8%. The rate of increase in service prices also did not change, and stabilized at 4.1%.
Investors are now analyzing what the latest data means for the path of interest rates in the 20-country euro zone, following the European Central Bank’s initial 25 basis point cut in June. The CPI has long been expected to be volatile this year, as volatile fundamental effects from the energy market subside.
These figures indicate that inflationary pressures may be more subdued than initially expected, which may influence future monetary policy decisions of the European Central Bank. If inflation continues to decline or stabilize at lower than expected levels, plans to raise interest rates may be reconsidered or adjusted to achieve a balance between supporting economic growth and controlling inflation.
In June, annual energy price inflation in the euro area reached 0.2%, a sharp turnaround from earlier in the year when the sector saw strong deflationary pressures. This change in energy prices reflects an improvement in economic stability and a decline in the impact of the severe fluctuations that hit the market in previous months.
Tracking energy prices is crucial to understanding broader economic dynamics in the euro area, as fluctuations in this sector can significantly impact industrial costs and household consumption. In addition, an improvement in energy prices could signal a gradual recovery in supply chains and stabilization of global markets.
Inflation in the euro area and the future of monetary policy
The European Union’s statistics agency announced on Tuesday that the euro zone’s inflation rate fell to 2.5% in June, in line with analysts’ expectations. This comes as core inflation, which excludes the volatile effects of energy, food, alcohol and tobacco, settled at 2.9%, slightly below analysts’ expectations of 2.8%. Also, the rate of rise in services prices remained unchanged and remained at 4.1%.
Commenting on the data, ECB Vice President Louis de Guindos said the central bank is confident that inflation will approach its 2% target, but that the coming months will be a “bumpy road” and there is no “pre-determined path” for monetary policy. This came on the sidelines of the European Central Bank’s Forum on Central Banks in Sintra, Portugal.
Impact of inflation on the economy and energy market: Annual energy price inflation in the euro area reached 0.2% in June, a sharp turnaround compared to earlier in the year when the sector experienced strong deflationary pressures. This change in energy prices reflects an improvement in economic stability and a decline in the impact of the severe fluctuations that hit the market in previous months.
This data is closely followed by investors and policy makers, as it helps shape their expectations about future inflation trends and monetary policies. A decline or stability in energy prices may support the current directions of the European Central Bank in maintaining interest rates stability or adjusting them in line with changing economic conditions.
Markets and investors respond Investors will now analyze what the latest data means for the path of interest rates in the 20-country euro zone, following the European Central Bank’s initial 25 basis point cut in June. The CPI has long been expected to be volatile this year, as volatile fundamental effects from the energy market subside.
Financial market forecasts
Financial markets expect high odds of two more interest rate cuts of 25 basis points each during the remaining four meetings of the European Central Bank this year, according to pricing data from the London Financial Markets Group. Markets estimate the odds of cutting interest rates again this month at only 33%.
The euro, which has suffered in recent weeks in light of the political risks resulting from the upcoming French elections, fell slightly following the release of the data. It fell by 0.2% against the US dollar and by 0.05% against the British pound at 10:30 am London time.
Kyle Chapman, foreign exchange market analyst at Ballinger Group, said that other than a slight slowdown in food prices – with inflation for unprocessed foods falling to 1.4% from 1.8% – the latest CPI was a “virtual repeat of the May data”.
“This is enough to stop the ECB meeting this month,” Chapman said in a note. “Persistent inflation in the services sector may begin to become a real concern for policymakers, which could hinder interest rate cuts, especially against the backdrop of high wage growth and low unemployment rates.”
“We have not seen any significant downward trend in services sector inflation this year, and the ECB is unlikely to cut interest rates significantly until a downward trend emerges.”
Chapman added that interest rate expectations will depend on the macroeconomic forecasts issued by ECB staff each quarter, and whether they will move higher.
