Euro area inflation eases more than expected in June as energy prices fall

Euro area annual inflation slowed in June as energy price pressures eased, according to a flash estimate released by Eurostat on Wednesday.

Consumer prices in the eurozone rose 2.8% year-on-year in June, down from 3.2% in May, the EU’s statistical office said. On a monthly basis, prices fell 0.1%.

Energy remained the main driver of inflation, rising 8.7% annually in June. However, the rate slowed from 10.8% in May, helping pull overall inflation lower.

Services inflation, closely watched by the European Central Bank (ECB), eased to 3.2% from 3.5% in May, while food, alcohol and tobacco inflation slowed to 1.6% from 1.9%.

Non-energy industrial goods inflation was stable at 0.9%.

Core inflation, which excludes energy, food, alcohol and tobacco, fell to 2.4% in June from 2.6% in May, according to the flash estimate.

Among the eurozone’s largest economies, inflation slowed in Germany to 2.4% in June from 2.7% in May, while France’s rate fell sharply to 2% from 2.8%, returning to the ECB’s target level.

Italy’s annual inflation eased slightly to 3.1% from 3.2%, while Spain’s rate remained unchanged at 3.6%.

Among countries with available data, Lithuania recorded the highest annual inflation rate in June at 5.5%, followed by Bulgaria at 5.3%, Croatia at 4.2%, the Greek Cypriot Administration at 4% and Greece at 3.9%.

The lowest annual rates were posted in Malta at 1.9%, France and Estonia at 2%, Germany at 2.4% and Finland at 2.7%.

On a monthly basis, Malta recorded the strongest increase in consumer prices at 1%, followed by the Greek Cypriot Administration at 0.8%, and Spain and Lithuania at 0.6% each.

The sharpest monthly declines were seen in Belgium, Bulgaria, Estonia and Luxembourg, where prices fell 0.4% each. France, Austria and Finland posted monthly decreases of 0.3%.

The latest inflation figures come as the ECB assesses whether its recent policy tightening will be sufficient to contain price pressures after the rise in energy costs linked to tensions in the Middle East.

ECB officials have signaled caution, warning that earlier increases in oil and natural gas prices may still feed through to food, goods and services prices in the coming months.

Financial markets still expect one more 25-basis-point rate hike by the end of the year, which would take the ECB’s deposit rate to 2.5%, though expectations for more aggressive tightening have eased as energy markets cooled.