Core inflation, which measures prices excluding energy and food costs, was 2.9% year-on-year, the same level as in May but higher than April's 2.7%.
According to Eurostat estimates, the largest contributor to euro area inflation in June was 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 products (0.7%, stable compared to May) and energy (0.2%, compared to 0.3% in May).
Core inflation remains high
“Flash June figures suggest that European inflation fell again, down 10 basis points from May to 2.5%. While we still expect inflation to fluctuate, June's decline is very welcome and reaffirms the ECB's rate cut last month,” said Michael Field, European market strategist at Morningstar.
“Core inflation, the ECB's most closely watched measure, remained steady at 2.9% in June. The month-on-month unchanged suggests that the decline in headline inflation was mainly due to fluctuations in food and fuel prices, which are notoriously volatile,” he added.
European stock markets were mixed after the release of the inflation data, with Germany's DAX index down 0.9% and France's CAC 40 index up 1.1%, a day after the first round of the general election.
Eurozone bond yields were largely unchanged after the data was released, with German 10-year yields falling to 2.6% and French 10-year yields rising slightly to 3.3%, according to MarketWatch.
How many more rate cuts will the ECB make?
Michael Field says today's inflation figures are unlikely to change his forecast for two interest rate cuts by the European Central Bank this year.
“Following the ECB's first rate cut last month, attention is now turning to inflation to gauge how many more rate cuts there will be this year – economists' current forecast is two.”
At the ECB press conference on June 6, ECB President Christine Lagarde said that the ECB's monetary policy remains highly data-driven and that the bank is not committed to a “particular interest rate path.”
The central bank also revised its inflation forecasts at its June 6 meeting, now expecting headline inflation to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.
As for core inflation, the ECB expects it to average 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. The ECB said on June 6 that it expects economic growth to rise to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
The next ECB monetary policy meeting will be held on July 18th.
