Inflation in the euro area fell six tenths and in June it closed at 5.5% year-on-year, according to data advanced this Friday by Eurostat. It is the lowest data since February 2022, with the outbreak of the war in Ukraine. The core, even so, does not bring good news and keeps the pressure on interest rates.
The moderation is mainly due to the 5.6% drop in the cost of energy, compared to the drop of 1.8% in May, while the price of fresh food was 9%, six tenths below the data from the previous month. Services, for their part, accelerated four tenths to 5.4% at the gates of summer.
By excluding energy and fresh food, which is more volatile, from the calculation, the underlying rate stood at 6.8%, compared to 6.9% in the previous month. Excluding all foods (processed and unprocessed), alcohol and tobacco gives the core inflation used by the European Central Bank (ECB) in its monetary policy decisions. That rate rises from 5.3% to 5.4%. It is due to temporary base effects from the transport price subsidy in Germany a year ago, points out Ricardo Marcelli, an economist at Oxford Economics.
Despite the decreases, inflation remains well above the ECB’s 2% target, which in the last year has begun an accelerated rise in interest rates, bringing them to 4%. The entity chaired by Christine Lagarde is expected to raise rates another 25 points at the next meeting in July, up to 4.25%. “The data points in the direction of the latest ECB forecasts for the end of 2023,” according to Monex Europe analysts.
After the price crisis with the rise in energy and the outbreak of the war in Ukraine, a large part of countries came to see double-digit rates. Now only Slovakia (11.3%) is in that situation. Estonia (9%), Lithuania (8.2%) and Latvia (8.1%) are somewhat behind.
Among the economies that pull from the eurozone, Germany sees its rate rise from 6.3% to 6.8%, in France it falls seven tenths to 5.3% and in Italy it goes from 8% to 6.7%. Luxembourg (1%), Spain and Belgium (1.6% both) are the countries with the lowest inflation. “The rebound in core inflation will encourage the ECB to continue with its tightening in the coming meetings,” Marcelli estimates.
