But the slight drop in inflation will not be enough to prompt the European Central Bank to cut interest rates in July.
BRUSSELS, July 2 (Xinhua) — Annual inflation in the euro zone fell to 2.5 percent in June from 2.6 percent in May, provisional data released by Eurostat showed on Tuesday.
Inflation in the region fell steadily for months, hitting 2.4% in April before recovering to 2.6% in May. Inflation peaked at 10.6% in October 2022.
Services are now the main driver of euro area inflation, holding at a steady rate of 4.1%. Annual inflation for food, alcohol and tobacco is 2.5%, down from 2.6% in May. Year-on-year inflation for non-energy industrial products is stable at 0.7%. Energy prices decreased slightly year-on-year, decreasing from 0.3% in May to 0.2% in June.
Countries with the highest year-on-year inflation rates in June included Belgium (up to 5.5% from 4.9% in May), Spain (down to 3.5% from 3.8%) and Croatia (down to 3.4% from 4.3% in May).
The lowest annual inflation rates were in Finland, where it rose to 0.6% from 0.4% in May, Italy's to 0.9% from 0.8%, and Lithuania's to 1% from 0.9%.
The slight fall in inflation from 2.6 percent to 2.5 percent will not be enough for the European Central Bank to cut interest rates in July, according to Bert Collin, senior euro zone economist at ING.
“Wages growth remains elevated and uncertainty around services inflation remains the biggest obstacle to further rate cuts,” Collin said.
But because the economy is doing better than last year, the ECB can afford to wait for more evidence that inflation is subsiding before acting again, he said.
Colleen expects the ECB will wait to gather further data on wages, growth and inflation, as well as to assess the potential impact of the ongoing French elections, before deciding on a potential new rate cut in September.
After years of high prices and rising interest rates, the ECB cut its key interest rate by 25 basis points last month.
The central bank expects inflation to hover around current levels for the rest of this year before declining toward its target level in the second half of next year, reaching 2.5% in 2024 and 2.2% in 2025.
“Our work is not done. We need to remain vigilant,” European Central Bank President Christine Lagarde said in Sintra, Portugal, on Monday. “Inflation is projected to return to 2 percent in the second half of next year.”
He said the easing was remarkable in many ways, given the magnitude of the inflation shock: “We will not rest until inflation is back to 2 percent.” ■
