Euro zone inflation hit 5.5% in June, according to preliminary data, coming in lower than analyst expectations — but core inflation, which excludes energy and food, remains stubbornly high and rose to 5.4%.
Core inflation had eased to 5.3% in May, from 5.6% in April.
Headline inflation is now at its lowest point since January 2022, Eikon data show, but remains well above the European Central Bank’s 2% target.
Addressing the divergence of the two headline and core inflation moves, Bert Colijn, senior Eurozone economist for ING, said in a Friday note that “this is mainly related to base effects from government support and the underlying trend remains disinflationary. Concerns about persistent wage growth remain though as unemployment remained at historic lows in May.”
Falling energy prices were a significant contributor to the decline in inflation. Some media reports attributed the sticky core rate to an increase in German rail ticket costs, after the country this time last year offered a discounted pass.
The inflation figures will be closely watched by the European central bank, which hiked interest rates to their highest level in 22 years on June 15. The benchmark rate moved 25 basis points higher to 3.5%, moving out of step with the U.S. Federal Reserve, which paused hikes at its last meeting.
The European Central Bank also revised its headline and core inflation expectations for the next couple of years during its interest rate meeting. It now anticipates inflation will reach an average 5.4% this year, 3% in 2024 and 2.2% in 2025.
European Central Bank President Christine Lagarde said Tuesday, before the latest figures, that inflation was still too high and that it’s too early to declare victory over consumer price rises.
Speaking at the Sintra central banking event in Portugal, she said: “Inflation in the euro area is too high and is set to remain so for too long. But the nature of the inflation challenge in the euro area is changing.”
“Inflation is heading in the right direction,” said Clémence Dachicourt, senior portfolio manager at Morningstar Investment Management Europe, noting a “quite uncertain” path as Lagarde pursues the ECB’s long-term target. “Wage-price spiral, which are price increases caused by higher inflation, remains a clear burden for core-inflation. Therefore, it is likely too early to lower our guard against negative inflationary surprises just yet,” CNBC reports.
