Eurozone inflation eases slightly in June

Eurozone inflation slowed slightly to 2.5% in June from the previous month’s 2.6%, aligning with expectations. However, core inflation remained unchanged at 2.9%, slightly above the 2.8% consensus forecast.
This persistence in core inflation, particularly driven by a 4.1% rise in services prices, continues to be a concern for some European Central Bank (ECB) policymakers, suggesting that inflationary pressures might remain elevated.

The easing in the Consumer Price Index (CPI) was primarily due to a slower increase in energy and unprocessed food costs. Despite this, the continued high prices in the services sector indicate ongoing inflationary pressure.
The ECB has forecasted that inflation will hover around these levels for the rest of the year, and economists are closely examining recent price trends to determine if the ECB can achieve its 2% inflation target next year.

ECB President Christine Lagarde has indicated that more time is needed to gain certainty about the direction of prices, suggesting there is no immediate rush to further ease policy.
The price of goods has remained muted, and energy inflation has declined; however, the stickiness of service prices has created a divide among ECB policymakers.

Some policymakers believe that the price developments in services will eventually moderate, following other components with a delay, and that an economic rebound will help improve competitiveness.
Others are concerned that labor shortages, rapid wage growth, and poor productivity in the services sector could lead to entrenched rapid price growth, potentially keeping overall inflation above the target for an extended period.

In early June, the ECB lowered interest rates to acknowledge previous progress in reducing inflation but did not commit to further moves, citing a lack of confidence that inflation was firmly on track to meet the target.
While policymakers generally agree that the next move is likely a rate cut, the timing remains uncertain.
Many argue that July is too soon, with September being a potential timeframe, contingent on wage and price trends confirming the ECB’s projections.