Eurozone Inflation Slows More Than Expected in June, Reducing Pressure on ECB to Tighten Policy Further

Eurozone inflation slowed more than expected in June, with headline CPI easing to 2.8% from 3.2% in May, below forecasts of 3.0%. Core inflation, which strips out volatile food and energy prices, also cooled to 2.4% from 2.6%, undershooting expectations of 2.5%.

The softer-than-expected inflation reading was largely driven by lower energy and food costs, reducing pressure on the European Central Bank to deliver another rate increase despite lingering price pressures across the bloc.

While inflation remains above the ECB’s 2% target, improving sentiment following the recent decline in oil prices—supported by hopes of a potential US-Iran peace agreement—has strengthened expectations that price growth will continue to moderate in the coming months.

Recent remarks from ECB officials suggest there is little urgency to follow up on the 25-basis-point rate hike delivered at the June 11 policy meeting. The latest inflation data has provided policymakers with greater confidence and additional time to assess the underlying trajectory of price pressures before making further policy decisions.

Nevertheless, many economists still expect the ECB to tighten policy again in September or October, arguing that energy prices remain elevated relative to pre-war levels and that the inflation outlook remains vulnerable to renewed geopolitical tensions and commodity market volatility.