Eurozone Inflation Eases As Expected

(RTTNews) - Eurozone inflation softened as expected in June but services inflation showed no signs of easing, lowering the scope for another interest rate reduction from the European Central Bank.

The harmonized index of consumer prices posted an annual growth of 2.5 percent, which was slower than the 2.6 percent increase in May, flash data from Eurostat showed on Tuesday.

The flash rate came in line with expectations. The ECB aims to bring inflation to the 2 percent target in a timely manner.

At the same time, core inflation that excludes prices of energy, food, alcohol and tobacco, held steady at 2.9 percent in June.

On a monthly basis, the HICP gained 0.2 percent in June. Final data is due on July 17.

Data showed that among main components of inflation, services posted the biggest annual increase of 4.1 percent, the same rate as in May.

This was followed by food, alcohol and tobacco, which advanced 2.5 percent but slower than the 2.6 percent increase seen in the prior month. Energy price growth slowed to 0.2 percent from 0.3 percent.

Non-energy industrial goods prices logged a steady growth of 0.7 percent.

Capital Economics' economist Jack Allen-Reynolds said it already seemed unlikely that the ECB would cut interest rates at its July meeting, and today's inflation data, particularly the continued strength of services inflation will reinforce policymakers' inclination to move very cautiously.

Last month, the ECB had cut its key rates by 25 basis points, taking the refi rate to 4.25 percent. This was the first reduction since 2019.

The ECB staff now sees headline inflation at 2.5 percent this year, 2.2 percent next year and at 1.9 percent in 2026.

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