Eurozone Inflation Falls Below 2% In June

The euro area inflation fell below 2 percent in June as the annual growth in energy prices eased, preliminary data from Eurostat showed on Wednesday.

Inflation came in at 1.9 percent in June, as expected, down from 2 percent in the previous month.

The inflation rate had exceeded the European Central Bank’s target of “below, but close to” 2 percent in May for the first time since 2018.

Most of the evidence points to this slowdown as temporary, but upside risks to the inflation outlook have not been this substantial in years and should keep the ECB on the edge of its seat, Bert Colijn, an ING economist, said.

Looking ahead, energy price inflation is likely to stay around its current level until the end of the year and then drop back, Andrew Kenningham, an economist at Capital Economics, said.

The headline inflation is likely to rise over 2.5 percent by the end of the year, but then it will fall back to only around 1 percent in 2022 and remain low over the medium term, the economist added.

Core inflation that excludes energy food, alcohol and tobacco, eased to 0.9 percent from 1 percent in the previous month.

Among components, energy prices advanced 12.5 percent, but slower than the 13.1 percent increase posted in the previous month. Services cost grew at a slower pace of 0.7 percent.

Food, alcohol and tobacco prices gained 0.6 percent and non-energy industrial goods prices grew 1.2 percent.

Among big-four economies of the euro area, Germany’s harmonized inflation weakened to 2.1 percent from 2.4 percent in May. At the same time, Spain’s inflation held steady at 2.4 percent in June.

By contrast, France’s inflation rose marginally to 1.9 percent in June from 1.8 percent in the previous month. Likewise, Italy’s consumer price growth rose to 1.3 percent from 1.2 percent.

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