Euro zone inflation softened in June, moving away from the European Central Bank’s target as energy costs weakened and the price rises of food and services eased after a spike in May.
The European Union’s statistics office Eurostat said on Tuesday that consumer prices in the 19 countries sharing the euro rose by 0.2 per cent year-on-year in June from a 0.3 per cent increase in May.
The figure was in line with expectations. However, far lower than expected inflation figures for Germany released on Monday had braced the market for a potentially weaker number.
Excluding volatile energy prices, which were 5.1 per cent lower in June than 12 months earlier, consumer prices rose 0.9 per cent.
Excluding energy and unprocessed food – what the European Central Bank calls core inflation – prices were up 0.8 per cent from 0.9 per cent in May.
Eurostat’s flash estimate for the month does not include month-on-month calculations.
Under its money-printing quantitative easing scheme, the ECB is buying government bonds and other assets to pump around €1 trillion euros into the economy, aiming to lift inflation towards its target rate of just under 2 per cent.
QE is intended to last until September 2016.
Jennifer McKeown, senior European economist at Capital Economics, said in a note that the renewed decline in euro zone inflation highlighted that the ECB still had a lot of work to do to hit its target in the medium term, with euro zone inflation now below 0.5 per cent for a year.
She added that the unemployment rate, unchanged at 11.1 per cent in May, suggested that wage growth was unlikely to take off.
Teunis Brosens, euro zone economist at ING, said that May’s spike in core and services inflation had been reversed, implying that there was no trend increase.
However, he pointed to a rise of prices for industrial goods of 0.4 per cent, double the rate in May, as a possible sign that the weaker euro, which would make imports more expensive, was having an impact.
Preliminary data for Germany, Europe’s largest economy, showed on Monday that consumer prices there inched up by just 0.1 percent, a steep drop from the 0.7 percent increase in May and below the 0.4 percent market forecast.
Germany’s federal statistics office did not publish a detailed breakdown, but figures issued by German states showed that weak price pressure was partly due to lower energy inflation and the reversal of May’s rise in package holidays.
Spanish inflation was flat year-on-year in June following price falls a month earlier.
- Reuters
