Inflation in the euro area has once again eased significantly thanks to falling energy prices. In June, consumer prices rose by 5.5 percent year-on-year, according to an initial estimate from the statistics office Eurostat.
Inflation in the euro zone also fell significantly in June. Consumer prices increased by 5.5 percent compared to the previous year, after 6.1 percent in the previous month, as the statistics office Eurostat announced today in Luxembourg. It is the lowest inflation rate since the beginning of 2022. Economists had expected a slightly higher rate of 5.6 percent. Last year, inflation was at times in the double digits as a result of the war against Ukraine.
Core inflation rises
Despite the decline, the wave of inflation in the euro zone has not yet broken. The core rate, which excludes volatile energy and food prices, alcohol and tobacco, among other things, rose to 5.4 percent in June from 5.3 percent in May after falling in the previous two months.
In the opinion of many economists, core inflation reflects basic inflation and therefore represents the inflation trend somewhat better than the overall rate.
“July rate hike almost certain”
Energy prices fell sharply by 5.6 percent year-on-year in June after a fall of 1.8 percent in May. Meanwhile, food, alcohol and tobacco prices rose 11.7 percent from a 12.5 percent increase in May. Non-energy industrial goods rose by 5.5 percent after 5.8 percent previously. Services prices increased by 5.4 percent, after 5.0 percent in May.
“First of all, the good news: the core inflation rate will continue to fall in the coming months,” says Thomas Gitzel, chief economist at VP Bank, on the inflation figures. The bad news, meanwhile, is that the decline will be slow and tough. In the service sector, prices are increased due to higher wages. “This means that a rate hike in July is almost certain.”
The pressure on the European Central Bank (ECB) to fight inflation with further interest rate hikes should therefore remain high. Inflation is still more than double the monetary authorities’ target of 2 percent, which they see as the optimal level for the economy.
The ECB has raised interest rates eight times in a row. The deposit rate, which sets the trend on the financial markets, is now 3.50 percent – the highest level in 22 years. ECB President Christine Lagarde has already announced the next step upwards for July.
Inflation falls in France and Spain
Unlike in Germany, inflation eased in some European countries in June. In June, for example, consumer prices in France rose by only 4.5 percent compared to the same month last year. In May, the inflation rate was still 5.1 percent. In Spain, the inflation rate fell to 1.9 percent, which is again below the European Central Bank’s (ECB) target of two percent. There, the government had reduced VAT.
In Germany, on the other hand, the cost of living rose by 6.4 percent in June compared to the same month last year, compared to the 6.1 percent in May. Special effects are responsible for this, as a year earlier government summer aid such as fuel discounts and 9-euro tickets had limited inflation.