AFP – Eurozone inflation cooled in June, official data showed yesterday but experts say it will not be enough to convince the European Central Bank (ECB) to accelerate its rate-cutting cycle despite sluggish economic growth.
Consumer prices have remained stubbornly above the ECB’s two-per-cent target, although the return to easing inflation will no doubt be welcomed by officials.
Consumer price inflation in the single currency area came in at 2.5 per cent in June, down from a 2.6-per-cent rate in May, the European Union’s statistics agency said.
The May reading had been higher than expected, ticking above the 2.4 per cent rate registered in April. Economists surveyed by FactSet and Bloomberg had forecast that June inflation would ease to 2.5 per cent. Core inflation, which strips out volatile energy and food prices is a key indicator for the bank, was flat at 2.9 per cent in June.
Experts had expected it to cool to 2.8 per cent.
Inflation has slowly fallen since reaching a 10.6-per-cent peak in October 2022 following the Ukraine’s invasion, which forced the ECB to launch an unprecedented streak of interest rate hikes.
The ECB cut rates for the first time since 2019 on June 6, but officials have tried to temper expectations of another cut to borrowing costs at their July meeting.
“Our work is not done, and we need to remain vigilant,” warned ECB president Christine Lagarde on Monday. “We will not rest until the match is won and inflation is back at two percent,” she added in a speech in Portugal.
Experts said yesterday’s data would bolster the ECB’s cautious approach.
“It already seemed unlikely that the ECB would cut interest rates at its meeting in July, and June’s inflation data will reinforce policymakers’ inclination to move very cautiously,” said Jack Allen-Reynolds of London-based consulting firm Capital Economics.
There are however growing expectations that it could lower rates later this year. But “stubbornly high” services inflation “will cause headaches” for the ECB, according to Riccardo Marcelli Fabiani at Oxford Economics.
