Key facts
- Eurozone annual inflation fell to 2.8% in June, down from 3.2% in May.
- The figure was below the 3.0% expected by economists.
- Core inflation, excluding energy and food, decreased to 2.4% from 2.6%.
- Prices in the eurozone fell by 0.1% month-on-month in June.
- Germany's harmonised inflation rate eased to 2.4%, France's to 2.0%, and Italy's to 3.1%.
Inflation across the eurozone slowed more than anticipated in June, offering a potential reprieve for the European Central Bank (ECB) and sparking hopes that the surge driven by Middle East conflict is waning. The annual inflation rate for the currency bloc decreased to 2.8%, a notable drop from May's 3.2% and below the 3.0% forecast by economists. This marks the lowest reading since September 2023.
Prices within the eurozone experienced a monthly decline of 0.1%, the first such decrease this year. The core inflation rate, which excludes volatile energy and food prices, also eased to 2.4% from 2.6%, a figure closely watched by the ECB for underlying inflationary pressures. Energy remained a significant contributor to inflation, though its year-on-year rate cooled to 8.7% from 10.8% in May, influenced by a reversal in oil and gas prices following a ceasefire between the US and Iran and the reopening of the Strait of Hormuz.
Other price categories also softened. Services inflation decreased to 3.2% from 3.5%, while food, alcohol, and tobacco saw a slowdown to 1.6% from 1.9%. Industrial goods excluding energy held steady at 0.9%. Malta recorded the lowest annual inflation rate in the bloc at 1.9%, while Lithuania reported the highest at 5.5%. Several countries, including Belgium, Bulgaria, Estonia, and Luxembourg, experienced monthly price decreases.
Major eurozone economies all reported cooling inflation. Germany's harmonised inflation rate fell to 2.4%, France's to 2.0%, and Italy's to 3.1%. The slowdown in Germany and France was largely attributed to falling energy inflation, while Italy's rate remained relatively stable due to rising household energy bills. Economic adviser Joe Nellis suggested that the eurozone economy lacks the momentum to drive prices significantly higher, citing stable wage growth and settling energy markets. He indicated that further ECB rate hikes might not be necessary, with one more hike to 2.5% being a possibility.
Financial markets interpreted the inflation data as reducing the likelihood of aggressive ECB rate hikes. The euro weakened against the US dollar, falling below $1.14, and the Euro STOXX 50 index remained flat, with bank stocks experiencing a slight decline.