Core inflation, which measures prices excluding energy and food costs, rose to 2.9% from a year earlier, the same as in May but higher than the 2.7% rate seen in April.
In June, the main contributors to euro area inflation were services (4.1%, the same rate as in May), followed by food, alcohol and tobacco (2.5%, down from 2.6% in May), non-energy industrial goods (0.7%, stable from May) and energy (0.2% compared with 0.3% in May), according to Eurostat estimates.
Core inflation remains high
“June’s flash readings show that European inflation has fallen again, to 2.5%, 10 basis points lower than in May. While we still expect some volatility in inflation figures, the June move lower is welcome and reaffirms the ECB’s action in cutting rates last month,” said Michael Field, European markets strategist at Morningstar.
“Core inflation, the measure the European Central Bank focuses on most, was unchanged in June at 2.9%. The lack of change from month to month suggests that the decline in headline inflation is mainly due to changes in food and fuel prices, which we know are volatile,” he added.
European stock markets showed a mixed picture after the release of inflation data, with Germany’s DAX down 0.9% and France’s CAC40 up 1.1%, a day after the first round of national elections.
Eurozone bond yields were little changed after the data was released: Germany’s 10-year yield fell to 2.6% and France’s 10-year yield edged up to 3.3%, according to MarketWatch.
How many ECB rate cuts will follow?
Today’s inflation figures are unlikely to change the European Central Bank’s forecast of two rate cuts this year, according to Michael Field.
“With the ECB making its first rate cut last month, all eyes are on the inflation numbers to see how many rate cuts will follow this year. Economists’ current forecasts point to two cuts.”
At the ECB press conference on June 6, ECB President Christine Lagarde said that the ECB’s monetary policy would remain highly data-driven and that it was not committing to “a particular rate path.”
The central bank also revised its inflation forecast at its June 6 meeting, predicting headline inflation to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.
For core inflation, the ECB forecasts an average rate of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. As for economic growth, it is expected to accelerate to reach 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
The ECB’s next monetary policy meeting will take place on 18 July.
© Morningstar, 2024 – The information contained herein is for educational purposes and is provided for informational purposes ONLY. It is not intended to be, and should not be considered, a solicitation or encouragement to buy or sell any security mentioned. Any comments contained herein are the opinion of the author and should not be considered a personal recommendation. The information in this document should not be relied upon as the sole basis for making an investment decision. Please contact a financial advisor or financial professional before making any investment decision.
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