According to estimates by the European Central Bank, core inflation in the euro area could fall. As an important indicator, core inflation is relevant for future interest rate decisions by the central bank.
The European Central Bank has presented new data on core inflation in the euro zone. So it’s likely that it’s past its peak. The peak was reached in the first half of the year. according to the ECB experts.
“The estimates for the adjusted indicators, which ranged from 2.5 percent to 5.0 percent in June, also show some signs of moderation,” the experts wrote. The wider range of inflation measurements than before 2022 indicates a high level of uncertainty about its level.
Measures of core inflation
Headline inflation in the euro area was 5.5 percent in June and fell to 5.3 percent in July. The core inflation rate, which excludes energy and unprocessed food, fell to 6.6 percent from 6.8 percent.
The measure for the core rate, which, in addition to energy and food, also excludes the prices for alcohol and tobacco, remained at the June value of 5.5 percent in July.
Impact of core inflation on rate decision
The development of core inflation is an important factor for the interest rate decisions of the ECB. Since the summer of 2022, the ECB has raised the key interest rate several times to counteract high inflation – most recently last week for the ninth time, by 0.25 percentage points to 4.25 percent.
The so-called deposit rate, which banks receive for “parking” funds at the ECB, rose from 3.50 to 3.75 percent. This is the highest level in 23 years.
ECB President Christine Lagarde said with a view to future interest rate decisions, both interest rate hikes and an interest rate pause are possible. The next ECB interest rate meeting is scheduled for September 14 in Frankfurt.