Eurozone inflation slightly moderates in June
Eurozone inflation eased slightly to 2.5% in June from the previous month’s 2.6%, in line with expectations. However, core inflation held steady at 2.9%, slightly above the consensus forecast of 2.8%.
Persistent core inflation, driven notably by a 4.1% increase in services prices, remains a concern for some European Central Bank (ECB) policymakers, suggesting that inflation pressures could remain elevated.
The moderation in the Consumer Price Index (CPI) was mainly attributed to slower increases in energy and unprocessed food costs. Despite this, the sustained high prices in the services sector indicate ongoing inflationary pressures.
The ECB anticipates inflation to hover around current levels for the remainder of the year. Economists are closely monitoring recent price trends to assess whether the ECB can achieve its 2% inflation target next year.
ECB President Christine Lagarde has emphasized the need for more time to assess price trends before considering further policy adjustments. There is no immediate rush to ease policy further.
While goods prices have remained stable and energy inflation has decreased, the persistent rise in service prices has divided ECB policymakers.
Some believe that service price dynamics will eventually moderate, following other components with a delay, and that economic recovery will enhance competitiveness.
Others are concerned that labor shortages, rapid wage growth, and low productivity in the services sector could entrench inflation, potentially keeping it above target for an extended period.
In early June, the ECB acknowledged progress in inflation reduction by lowering interest rates but refrained from committing to further moves, citing uncertainty about inflation’s trajectory.
While policymakers generally agree that the next move will likely be a rate cut, the timing remains uncertain. Many argue against a move in July, suggesting September as a potential timeframe, contingent on wage and price trends aligning with ECB projections.
