Key facts
- Eurozone inflation was confirmed at 2.8% in June, down from 3.2% in May.
- Core inflation, excluding energy, food, alcohol, and tobacco, decreased to 2.4%.
- Energy inflation cooled to 8.5% and services inflation eased to 3.2%.
- The European Central Bank is set to announce its policy decision this week.
- Brent crude oil prices rose to $87 a barrel amid renewed conflict involving Iran.
Eurozone inflation was confirmed at 2.8% for June, a decrease from 3.2% in May, marking the first decline this year. This development provides the European Central Bank (ECB) with a potential argument to maintain its deposit facility rate at 2.25% during its upcoming policy meeting. Final figures from Eurostat indicated a slowdown in annual inflation, with core inflation easing from 2.6% to 2.4%, energy inflation cooling from 10.8% to 8.5%, and services inflation decreasing from 3.5% to 3.2%. Inflation fell in 22 of the 27 EU member states, with notable rates in Germany (2.4%), France (2%), Italy (3%), and Spain (3.6%).
The previous month saw the ECB implement its first interest rate hike in nearly three years, raising the deposit facility rate to 2.25% due to inflation reaching 3.2% in May, exacerbated by the war in Iran. However, renewed conflict involving Iran has driven Brent crude oil prices back up to $87 a barrel, raising concerns about a potential resurgence of inflationary pressures. Despite this, ING expects the ECB to hold rates steady this week, anticipating a second increase in September. ECB President Christine Lagarde has previously stated that inflation is a genuine concern and that projections show it returning to the 2% target only in late 2027, contingent on further monetary tightening. She has also indicated that policy decisions will be made on a meeting-by-meeting basis, guided by incoming economic data, and that forward guidance is not currently planned.
In comparison, the US Federal Reserve left its benchmark interest rate unchanged, while the Bank of England also maintained its rate, though two policymakers favored an increase. The Bank of Japan, however, raised its policy rate to a 31-year high.