Inflation cools in biggest euro economies, easing rate hike urgency
PARIS, June 30 (Reuters) - Preliminary June data show inflation slowed more than anticipated in most large euro zone economies, reducing short-term pressure on the European Central Bank (ECB) to tighten policy further.
Germany, France and Italy all posted weaker-than-forecast inflation readings, while Spain was the only major economy where inflation failed to decline. These numbers raise the chances that the overall euro zone inflation print, due on Wednesday, could come in below market expectations.
Economists surveyed by Reuters expect the currency bloc’s June inflation rate to be 3.0%.
“Upside risks to inflation have declined markedly,” said Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics. Although inflation expectations remain relatively high and energy prices could rebound, he said there is “no pressing need for the ECB to raise interest rates further.”
A recent sharp fall in energy prices has also eased the immediate pressure on ECB policymakers ahead of their July meeting. Even so, four sources told Reuters that a small rate increase at a later stage is still a possibility.
In Germany, the euro area’s largest economy, headline inflation slowed to 2.4% in June from 2.7% in May, undershooting the 2.5% forecast in a Reuters poll. Core inflation stayed at 2.5%, indicating that lower energy costs have not yet significantly fed through to the broader price basket.
France saw an even steeper decline, with inflation dropping to 2.0% in June from 2.8% in May, matching the ECB’s target and coming in well below the 2.3% expected. The fall was driven mainly by a 5% drop in energy prices. Service inflation eased to below 2%, and prices of manufactured goods slipped by 0.9%.
Italy also recorded a modest easing, with inflation edging down to 3.1% from 3.2% in May, contrary to forecasts that it would remain unchanged.
Spain was the outlier among the big euro zone economies, with June inflation steady at 3.6%, the same as in May but higher than the 3.4% economists had predicted.
Reporting by Leigh Thomas in Paris, Maria Martinez in Berlin, Valentina Consiglio and Gavin Jones in Rome; Editing by Susan Fenton
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