Euro zone inflation slows to 2.5% in June – flash reading

The euro zone’s annual rate of inflation cooled in June in line with analysts’ expectations thanks to a slowdown in food and energy price rises, official data showed today.

The European Central Bank will welcome the slowdown in inflation again but the rate has remained stubbornly above the Frankfurt-based body’s 2% target.

Consumer price increases in the single currency area stood at 2.5% in June, down from a 2.6% rate in May, the EU’s statistics agency said.

The May reading had been higher than expected, ticking above the 2.4% rate registered in April.

Economists surveyed by FactSet and Bloomberg had forecast that inflation would ease to 2.5% in June.

Core inflation, which strips out volatile energy, food, alcohol and tobacco prices and is a key indicator for the bank, was unchanged at 2.9% in June. Experts had expected it to cool to 2.8%.

Euro zone inflation has slowly come down since reaching a 10.6% peak in October 2022 following the outbreak of war in Ukraine, which forced the ECB to launch an unprecedented streak of interest rate hikes.

The ECB cut interest rates for the first time since 2019 on June 6.

ECB officials have however tried to temper expectations of another cut to borrowing costs at their July meeting, saying there was no “pre-determined” rate path.

“Our work is not done, and we need to remain vigilant,” warned ECB president Christine Lagarde yesterday.

“We will not rest until the match is won and inflation is back at 2%,” she added in a speech in Portugal.

Economists view the chances of another cut at the ECB’s next meeting in July as low, but there are growing expectations that it could lower rates later this year.

The ECB in June also revised its predictions, expecting euro zone inflation to come in at 2.2% in 2025 before falling to 1.9% the following year.

Today’s data showed energy price rises slowed to a rate of 0.2% in June, down from 0.3% in May.

Food, alcohol and tobacco price increases also eased to 2.5% last month, a slight drop from 2.6% in May, according to Eurostat.

Across the euro zone, Finland recorded the lowest inflation rate in June, at 0.6%, Eurostat data showed. Italy came second, registering an inflation rate of 0.9% in June. Belgium was the highest, at 5.5%.

Flash figures from the Central Statistics Office yesterday showed that the annual rate of inflation here rose at the slowest rate in more than three years in June, increasing by 1.5% year-on-year compared to a rate of 2% in May.

Other Eurostat data published today showed the unemployment rate in the single currency area was stable at 6.4% in May, a record low.