Euro zone: inflation falls little in June and reinforces the ECB's caution

Inflation has picked up a bit again; the decline in June in the euro zone, but not enough to convince the European Central Bank (ECB) to accelerate the reduction in its interest rates ;t face &agrav; growth at half mast.

The rise in consumer prices slowed to 2.5% year-on-year, after 2.6% in May, in the 20 countries sharing the single currency, thanks to the decline in food prices and energy, according to figures published Tuesday by Eurostat.

Inflation is thus once again approaching the 2% target set by the European Central Bank (ECB ), after moving away from it the previous month.

Overall, the rise in consumer prices in the euro zone has been more than divided by four since the record of 10.6% over one year reached in October 2022, in the midst of the energy surge in the context of the war in Ukraine.

But the journey promises to be bumpy for the coming months: the indicator should fluctuate before reaching the target of 2% only in the second half of the next year, according to forecasts from the ECB and the European Commission.

Enough to convince the monetary institution not to rush the current monetary easing, after a first reduction in its key rates announced on June 6.

Economists are now counting on rates being maintained at the next meeting of the ECB Governing Council on July 18 , before perhaps a further drop on September 12.

– “Stay vigilant” –

Inflation in the Eurozone falls slightly in June © AFP – jody amiet

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“We will not rest until the game is won and inflation is back to 2%,” central bank chief Christine Lagarde warned on Monday. “Our work is not done and we must remain vigilant,” she added.

“It had already looked unlikely that the ECB would cut interest rates at its July meeting and June's inflation data will reinforce its policymakers' very cautious approach,” Jack Allen-Reynolds said for Capital Economics.

Inflation's 0.1 percentage point decline in June was in line with analysts' forecasts at Factset and Bloomberg. But it came after a 0.2 percentage point increase the previous month.

Core inflation – that is to say corrected for volatile energy and food prices -, particularly scrutinized by the financial markets and the ECB, on the other hand remained stable over one month at 2, 9%, according to the European Statistics Office. The consensus of analysts anticipated a slight decline to 2.8%.

The slight decline in inflation in June can be explained by a slowdown in the rise in prices of 0.1 point both for food (including alcohol and tobacco), at 2.5% over one year, and for energy, at 0.2%.

The inflation of prices for services and that of industrial goods, however, remained stable compared to May at 4.1% and 0.7% respectively over one year.

– “Headaches” –

“Despite the fall in overall inflation, the persistence of high services inflation will give rise to headaches at the ECB”, estimated Riccardo Marcelli Fabiani for Oxford Economics.

To stem inflation, the ECB had increased borrowing costs at a rapid pace unprecedented from July 2022. On June 6, it began to lower its key rates, offering a slight breath of fresh air to ease tensions on real estate credit and business loans.

Serving as a reference, the rate on deposits of 4%, its highest reached last September, was reduced to 3.75%.

Within the euro zone, the strongest price increase in June was recorded in Belgium (5.5%), where wages are indexed to inflation, ahead of Croatia and the Netherlands, both at 4.4% over one year.

Inflation reached 2.5% in France as in Germany, while Italy (0.9%) and Finland (0.6%) showed the lowest figures, according to harmonized Eurostat data.

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