Eurozone Inflation At 6-Month Low

Eurozone inflation eased to a 6-month low on energy prices in June, while core inflation increased after slowing in May, extending some support to the recent hawkish stance of the European Central Bank.

Consumer prices climbed 1.3 percent year-on-year in June, slightly slower than the 1.4 percent increase seen in May, flash data from Eurostat showed Friday.

This was the weakest rate seen so far this year. Inflation was forecast to slow to 1.2 percent. Final data is due on July 17.

The ECB targets inflation ‘below, but close to 2 percent and markets have taken a view that the bank may be close to start withdrawing its massive stimulus that combines asset purchases and ultra-low interest rates, following some remarks by ECB President Mario Draghi that were construed as hawkish.

Draghi signaled that some policy tweaks may be possible to support the economic recovery in the euro area, which is apparently better than the bank expected. Any such policy adjustment would be gradual and made with prudence, he added.

Adding strength to the hawkish view, the monetary policy-relevant core inflation that excludes energy, food, alcohol & tobacco, accelerated to 1.1 percent from 0.9 percent a month ago. The rate was expected to ease to 1 percent.

The health of the consumer sector combined with the slight rise in core inflation reinforces the view that the ECB will announce at its September meeting that it plans to taper its asset purchases from January 2018, Capital Economics’ Jennifer McKeown said.

“But we doubt that it will act before then and expect it to keep stressing that interest rate hikes are a distant prospect,” the economist added.

Among components of the harmonized index of consumer prices, food, alcohol and tobacco prices climbed 1.4 percent annually, following a 1.5 percent rise in May. Energy price growth eased sharply to 1.9 percent from 4.5 percent.

Meanwhile, services cost grew at a faster pace of 1.6 percent after rising 1.3 percent. Non-energy industrial goods prices gained 0.4 percent versus 0.3 percent in the previous month.

Among the big-four economies, inflation increased in Germany, while slowed in the other three. Germany’s HICP rate rose to 1.5 percent from 1.4 percent.

French inflation eased marginally to 0.8 percent from 0.9 percent.

Spain’s harmonized inflation slowed to 1.6 percent from 2 percent in May. Likewise, Italy’s inflation fell to 1.2 percent from 1.6 percent.

by RTT Staff Writer

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