Eurozone-wide inflation slowed to 2.5% in June, prompting the European Central Bank to keep interest rates on hold this month, despite continued pressure on household budgets from rising prices in the service sector.
The annual consumer price inflation rate across the 20-nation bloc slowed from 2.6% in May, in line with financial market expectations, according to preliminary estimates from the EU’s statistics agency Eurostat.
But core inflation, which excludes food, energy, alcohol and tobacco, was unchanged at 2.9%, slightly higher than economists expected, reflecting stubborn inflationary pressures.
Analysts said the figures were unlikely to prompt the ECB to cut rates again at its next policy meeting on July 18, after becoming the world’s major central bank to lower public borrowing costs in June. Showed.
“There’s nothing in these numbers that will lead the ECB to decide to cut rates again in July,” said Bart Collein, senior euro zone economist at Nederlands Bank. We will eagerly await the data.” ING.
“The summer is likely to be relatively boring[for the ECB]. It can afford not to cut rates further based on too high core inflation and the strength of the labor market, pending further data on wages, inflation and growth. We will also see how the market turmoil surrounding the French election plays out.
Eurostat’s preliminary figures for June showed that the annual inflation rate in the service sector was the highest at 4.1%, and remained stable compared to May. Annual price growth for food, alcohol and tobacco slowed to 2.5% from 2.6% in May.
Riccardo Marcelli Fabiani, senior economist at consultancy Oxford Economics, said: “Inflation is falling again after a pause in May, thanks to slower wage growth, lower energy prices and normalization. “Inflationary pressures have eased and are likely to continue to decline.” Price expectations. However, the stability of core inflation reminds us that the process of deflation is full of ups and downs. ”
Last month, the ECB cut its key deposit rate from a record 4% to 3.75%, ahead of the US Federal Reserve and the Bank of England, which have not yet cut interest rates. This is the first reduction in the euro zone’s main interest rate in about five years.
But central bank President Christine Lagarde said on Monday that strong economic trends, with a strong labor market and strong wage growth, suggested further rate cuts were not urgent.
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The latest figures were released as European stock markets fell to two-week lows on Tuesday due to concerns over the outcome of the French general election and growing economic uncertainty across the eurozone.
Pierre Roque, senior analyst at Validus Risk Management, said political uncertainty and rising inflationary pressures could force financial markets to force the ECB to keep interest rates on hold for a longer period of time than expected, and traders are worried. have said they are preparing for a second interest rate cut in September.
He said the second interest rate cut “feels ambitious.” “It’s certainly a bigger risk if interest rates go up than if they go down.”
