Eurozone inflation dips to 2.5 pct in June

The minor decrease in inflation, however, is insufficient for the European Central Bank (ECB) to cut rates in July.

BRUSSELS, July 2 (Xinhua) -- Yearly inflation in the Eurozone dropped to 2.5 percent in June, down from 2.6 percent in May, according to preliminary data published by Eurostat on Tuesday.

Inflation in the zone had steadily decreased for months, reaching 2.4 percent in April, before rebounding to 2.6 percent in May. It had previously peaked at 10.6 percent in October 2022.

Services are now the main driver of Eurozone inflation, maintaining a stable rate of 4.1 percent. Yearly inflation for food, alcohol and tobacco stands at 2.5 percent, down from 2.6 percent in May. Non-energy industrial goods have a stable year-on-year inflation rate of 0.7 percent. Energy prices saw a slight decrease in year-on-year inflation, from 0.3 percent in May to 0.2 percent in June.

Countries with the highest year-on-year inflation rates in June include Belgium with 5.5 percent, up from 4.9 percent in May; Spain with 3.5 percent, down from 3.8 percent; and Croatia with 3.4 percent, down from 4.3 percent in May.

The lowest yearly inflation rates were recorded in Finland at 0.6 percent, up from 0.4 percent in May; Italy at 0.9 percent, up from 0.8 percent; and Lithuania at one percent, up from 0.9 percent.

According to Bert Colijn, senior economist for the Eurozone at ING, the minor decrease in inflation from 2.6 percent to 2.5 percent is insufficient for the European Central Bank (ECB) to cut rates in July.

"With wage growth still stubbornly high, uncertainty around services inflation remains the most important barrier to further rate cuts materializing," Colijn said.

However, since the economy is performing better than last year, the ECB can afford to wait for more evidence of calming inflation before taking action again, he said.

Colijn anticipates the ECB will wait to gather additional data on wages, growth and inflation, and assess the potential impacts of the ongoing French elections, before making a decision on a potential new rate cut in September.

Following years of high price levels and rising interest rates, the ECB cut its key interest rates by 25 basis points last month.

The central bank expects inflation to fluctuate around current levels for the rest of the year before declining towards the target level over the second half of next year. It is anticipated to stand at 2.5 percent in 2024 and 2.2 percent in 2025, respectively.

"Our work is not done, and we need to remain vigilant," ECB President Christine Lagarde said Monday in Sintra, Portugal. "Inflation is projected to return to two percent in the latter part of next year."

Considering the size of the inflation shock, this unwinding is remarkable in many ways, she said. "We will not rest until … inflation is back at two percent." ■