Eurozone inflation softens on energy dip

Headline inflation of 0.2% is in line with market expectations for monthly figure

Eurozone 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 yesterday that consumer prices in the 19 countries sharing the euro rose by 0.2 per cent year-onyear 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.

Jennifer McKeown, senior European economist at Capital Economics, said in a note that the renewed decline in Eurozone inflation highlighted that the ECB still had a lot of work to do to hit its target in the medium term, with Eurozone 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, Eurozone 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.