Eurozone inflation slows to 2.5% in June as ECB rate cut hopes rise

After a brief rise in May, the eurozone’s annual inflation rate fell in June, in line with expectations. expectations of economists and reinforcing hopes of possible interest rate cuts by the European Central Bank (ECB).

The harmonized index of consumer prices of The eurozone rose by 2.5% year-on-year in June, a slight decline compared to 2.6% recorded the previous month, according to the Eurostat preliminary estimates published on Tuesday. On a monthly basis, inflation rose by 0.2%, maintaining the same pace as in May.

Examining the main components of inflation In the euro area, services recorded the highest annual rate in June, at 4.1%, unchanged from May. This was followed by food, alcohol and tobacco, at 2.5%, slightly higher than in the previous year. below 2.6% of May; non-energy industrial goods, with 0.7%, stable compared to May; and energy, with 0.2%, below the 0.3% of May. Excluded food and energycore inflation fell from 2.9% year-on-year in May to 2.8% in June, in line with market expectations.

Belgian inflation hits 10-month high, while Germany declines

Among eurozone members, Belgium experienced stubbornly high inflation in June, with a harmonized annual rate which reached 5.5%, the highest since August 2023. On a monthly basis, inflation in Belgium accelerated to a pace of 0.5%.

In the Netherlands, inflation also rose from 2.7% to 3.5%, reaching the highest level since August 2023. Other countries that recorded increases in inflation were Italy, which went from 0.8% year-on-year to 0.9%, and Finland, which rose from 0.4% to 0.6%, although still very below the block average. In Latvia, inflation rose from 0% to 1.4%, and in Lithuania, from 0.9% to 1%.

In Germany, harmonised consumer prices rose by 2.5% compared to June 2023, down from the previous rate of 2.8%. In France, inflation slowed from 2.6% year-on-year to 2.5%.

ECB’s work is not yet over, says Lagarde

The European Central Bank’s efforts to combat inflation “are not over,” and the policy makers must remain vigilant, its president, Christine Lagarde, said on Monday.

Speaking ahead of the central bank’s Monetary Policy Forum in Sintra, Lagarde said recent policy measures have helped stabilize inflation expectationswith inflation projected to return to 2% sustainably in the second half of 2025.

“We still face several uncertainties regarding future inflation,” Lagarde warned, adding that policy makers They will need time to collect sufficient data that give them confidence that the risks of inflation overshooting the target have been mitigated.

Doing a comparison With the late footballer and coach Sir Bobby Robson, Lagarde stressed that “the first 90 minutes are the most important.” She also said: “We will not rest until we win the game and inflation returns “2%”.

Market reactions

The operators have increased slightly the probability of an ECB rate cut in September, now estimated at 86%. Market participants expect a total of 44 basis points in rate cuts by the end of the year, suggesting almost two additional policy adjustments by the ECB.

The euro fell 0.2% against the dollar to 1.0716, on track to end a three-session winning streak. Eurozone sovereign yields were broadly unchanged following the inflation data, with the 2-year Schatz trading at a yield of 2.90%. Sovereign yields rose sharply on Monday, with the Bund rising 0.2% to 1.0716. adding 10 basis points to reach 2.60%, driven by a combination of rise in oil prices and political uncertainties in both Europe and the United States.

European stocks fell on Tuesday, with the Euro Stoxx 50 losing more than 1% by 11:20 CET. Both the German DAX and the French CAC 40 were downrecorded similar declines. Madrid lagged behind, with the IBEX 35 falling 1.4%, reflecting the low risk sentiment. Munich RE, Bayer and Banco Santander were the biggest laggards among the stocks. The 50 biggest European stockswith falls of 3.9%, 2.9% and 2.8%, respectively.