Eurozone inflation fell to 2.5% in June, as expected. Inflation in Belgium reached a 10-month high, while in Germany it fell.
advertisementEuro zone annual inflation eased in June after a brief rise in May, in line with economists' expectations and raising hopes of a potential interest rate cut by the European Central Bank (ECB).
The euro zone's harmonized consumer price index rose 2.5% year-on-year in June, down slightly from 2.6% the previous month, according to a provisional Eurostat estimate released on Tuesday. On a monthly basis, inflation rose 0.2%, keeping the pace the same as in May.
Looking at the main components of euro area inflation, services had the highest rate of 4.1% year-on-year in June, unchanged from May, followed by food, alcohol and tobacco at 2.5%, down slightly from 2.6% in May. Non-energy industrial products were stable at 0.7% compared to May, while energy was 0.2%, down from 0.3% in May.
Core inflation, excluding food and energy, fell to 2.8% year-on-year in June from 2.9% in May, in line with market expectations.
Belgium inflation hits 10-month high while Germany's falls
Among euro area member states, Belgium experienced stubbornly high inflation in June, with the annual harmonized inflation rate reaching 5.5%, the highest since August 2023. On a monthly basis, Belgium's inflation rate accelerated at a 0.5% pace.
In the Netherlands, inflation also rose from 2.7% to 3.5%, reaching its highest level since August 2023. Other countries where inflation rates increased include Italy (from 0.8% to 0.9% year-on-year) and Finland (from 0.4% to 0.6%), which are still well below the EU average. Additionally, inflation rose in Latvia from 0% to 1.4% and in Lithuania from 0.9% to 1%.
In Germany, the harmonized consumer price index rose 2.5% year-on-year in June 2023, down from 2.8% in the previous reading. Inflation in France slowed to 2.5% from 2.6% a year ago.
ECB's work is not done yet, says Lagarde
The European Central Bank's fight against inflation is “not over yet” and policymakers must remain vigilant, President Christine Lagarde said on Monday.
Speaking ahead of the central bank's monetary policy forum in Sintra, Lagarde said recent policy measures had helped stabilise inflation expectations and that she expected inflation to return to 2% sustainably in the second half of 2025.
“We still face some uncertainties about future inflation,” Lagarde warned, adding that policymakers need time to gather enough data to be confident that the risks of above-target inflation have abated.
Lagarde compared herself to the late soccer player and manager Bobby Robson, stressing that “the first 90 minutes are the most important,” and declared that “we won't rest until we win the game and get inflation back to 2%.”
Market reaction
Traders have slightly increased the chances that the ECB will cut rates in September, now estimating the likelihood at 86%. Market participants expect a total of 44 basis points of rate cuts by the end of the year, suggesting the ECB could make nearly two more policy adjustments.
The euro weakened 0.2% against the dollar to 1.0716, on track to end a three-session winning streak. Euro zone government bond yields were little changed following the inflation data, with the two-year Schatz bond trading at a yield of 2.90%. Government bond yields rose sharply on Monday, with German Bunds rising 10 basis points to 2.60%, driven by a combination of rising oil prices and political uncertainty in both Europe and the US.
European stocks fell on Tuesday, with the Euro Stoxx 50 index down more than 1% by 11:20 a.m. CET. Germany's DAX and France's CAC 40 indexes also fell. Madrid lagged behind, with the IBEX 35 index dropping 1.4%, reflecting a worsening risk sentiment.
Munich RE, Bayer and Banco Santander were the laggards among Europe's 50 largest stocks, falling 3.9%, 2.9% and 2.8% respectively.
