Inflation across the eurozone slowed more than expected in June, offering fresh signs that price pressures are easing and reducing the likelihood of further interest rate increases by the European Central Bank (ECB) in the near term.
According to Eurostat’s preliminary estimate, annual inflation in the 20-member currency bloc fell to 2.8% in June from 3.2% in May. The figure was also below economists’ forecasts of 3.0%. On a monthly basis, consumer prices declined by 0.1%, marking the first monthly fall this year after several consecutive increases.
Underlying inflation also continued to moderate. Core inflation, which excludes volatile food and energy prices and is closely monitored by the ECB, eased to 2.4% from 2.6% in May, suggesting that broader price pressures are gradually weakening.
Energy remained the largest contributor to inflation, although its impact continued to diminish. Annual energy inflation slowed to 8.7% in June from 10.8% a month earlier. The decline followed lower oil and gas prices after the ceasefire between the United States and Iran and the reopening of the Strait of Hormuz, easing concerns over prolonged supply disruptions.
Other sectors also recorded slower price growth. Services inflation fell to 3.2% from 3.5%, while inflation for food, alcohol and tobacco eased to 1.6% from 1.9%. Prices for industrial goods excluding energy remained unchanged at 0.9%.
Inflation rates continued to vary across the eurozone. Malta recorded the lowest annual inflation at 1.9%, followed by France and Estonia at 2.0%. Germany’s inflation stood at 2.4%, while Finland reported 2.7%, both below the eurozone average.
At the other end of the scale, Lithuania recorded the highest annual inflation at 5.5%, followed by Bulgaria at 5.3%, Croatia at 4.2% and Cyprus at 4.0%.
Several countries also recorded monthly declines in consumer prices between May and June. Prices fell by 0.4% in Belgium, Bulgaria, Estonia and Luxembourg, while France, Austria and Finland each posted declines of 0.3%.
Among the eurozone’s largest economies, Germany’s harmonised inflation rate eased to 2.4% from 2.7%, helped by a sharp slowdown in energy price growth. France recorded a larger decline, with its harmonised inflation rate falling to 2.0% from 2.8%, while Italy’s inflation remained relatively stable at 3.1%, reflecting continued increases in regulated electricity and gas prices.
Economists said the latest figures indicate that weaker economic activity and easing energy markets are helping to slow inflation. Joe Nellis, economic adviser at MHA, said businesses remain cautious about investment while consumers continue to limit spending, reducing upward pressure on prices.
Financial markets interpreted the data as reducing the need for additional monetary tightening. The euro weakened against the US dollar, while European banking shares declined as investors scaled back expectations of further ECB interest rate increases.
With inflation moving closer to the ECB’s target and economic growth remaining subdued, analysts expect policymakers to leave interest rates unchanged when the Governing Council meets later this month.
