Eurozone inflation ticks up moderately in June

BRUSSELS (AFP): Eurozone inflation ticked up slightly to 2.0% in June, in line with analyst forecasts and also meeting the target of the European Central Bank (ECB), official data showed on Tuesday.

Inflation in the single currency area rose from the 1.9% recorded in May due to a slower decline in energy prices.

Core inflation, which strips out volatile energy, food, alcohol and tobacco prices and is a key indicator for the ECB, was stable at 2.3% in May, as predicted by economists for Bloomberg.

The bank expects eurozone inflation to be on target this year as U.S. President Donald Trump’s tariff blitz exerts downward pressure on prices.

The June rise in inflation was due to energy costs falling at a slower pace of 2.7% in June after a drop of 3.6% in May, Eurostat said.

Food and drink price increases slowed slightly to 3.1% in June, compared to 3.2% in May.

Inflation has significantly fallen from its record peak of 10.6% in October 2022 after Russia’s invasion of Ukraine sent energy prices sky-high.

With inflation under control, the ECB has shifted to cutting interest rates to boost the eurozone’s sluggish economic growth.

The ECB has cut interest rates eight times since June last year when it began lowering borrowing costs. The next rate-setting meeting is on July 24.

While it seems the “fight against inflation has been largely won,” according to Andrew Kenningham, chief Europe economist at Capital Economics, it leaves the bank “with a difficult decision whether to call a halt to its easing cycle.”

Kenningham said it was “most likely” the ECB would leave its key deposit rate unchanged at 2.0% in July and make a final cut of 25 basis points in September.

Tuesday’s data also showed that consumer price rises in Germany, Europe’s biggest economy, slowed in June to 2.0% in June from 2.1% in May.

But in France, inflation accelerated to 0.8% in June from 0.6% in May.

The Frankfurt-based ECB, however, warned Monday of “new challenges” – from trade tensions to artificial intelligence – that could make inflation more volatile.

“The inflation environment will remain uncertain and potentially more volatile … posing challenges for the conduct of monetary policy,” the ECB said.