European inflation cools thanks to energy prices

Eurozone inflation continued to fall in June, as lower fuel prices offset gains in the services sector.

The European Statistical Office (Eurostat) said on June 30 that inflation in the 20 countries using the common European currency was 5.5% in June. This is a decrease from 6.1% in the previous month. This is the 7th month in the past 8 months that this index has decreased.

“Inflation remains high, but the pace of increase has slowed,” said Frederik Ducrozet, head of macro research at Pictet Wealth Management. Lower fuel prices have played a large part in the slowdown.

Customers shop at a supermarket in Nice (France). Photo: Reuters — Customers shop at a supermarket in Nice (France). Photo: *Reuters*

However, core inflation (which strips out energy and food prices) – which the ECB considers to be a more accurate measure of the situation – fell to 6.8% from 6.9%, a decline well below officials’ expectations.

"Core inflation is likely to remain above 5% in the coming months, requiring the ECB to raise interest rates further," Ulrike Kastens, an economist at DWS, predicted.

Services inflation also accelerated, from 5% to 5.4%. This reflects buoyant consumption despite high interest rates. This may be due to the stable employment situation. The eurozone unemployment rate remains at a record low of 6.5% in May, according to Eurostat.

The European Central Bank has raised interest rates for the ninth time in a row and is expected to raise them again in September. Rates are now at a 22-year high. The ECB forecasts inflation will remain above its 2% target until the end of 2025.

ECB President Christine Lagarde said this week that the bank cannot afford to stop raising rates anytime soon. But the campaign is under pressure from Italy and Portugal, which are concerned about the impact of higher rates on households and businesses.

In addition, if we look at each country separately, Germany is the only country where inflation is accelerating. Inflation there was 6.8% last month, up from 6.3% previously.

"The ECB's job remains difficult, as the data shows inflation is diverging across countries," said Neil Shah, research director at Edison Group.

Ha Thu (according to Reuters)

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