European inflation cools thanks to energy prices

Inflation in the euro zone continued to fall in June, as lower fuel prices offset a rise 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 rate is down 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 contributed largely to the slowdown.

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

However, core inflation (which strips out energy and food prices) – which the ECB considers more reflective 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.

Service sector 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. Unemployment in the eurozone 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 plans to raise them again in September. Interest rates are now at a 22-year high. The ECB forecasts inflation will remain above its 2% target until the end of 2025.

This week, ECB President Christine Lagarde said 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 interest rates on households and businesses.

Germany is the only country where inflation has accelerated, with inflation rising to 6.8% last month from 6.3% the previous month.

"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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