Inflation in the Eurozone Rose More Than Expected in June

Core inflation in the Eurozone, a key indicator of price movements for the European Central Bank, accelerated in June more than expected, indicating that the ECB will likely raise interest rates again at meetings scheduled for next week (July 26 and 27), Bloomberg reports.

According to Eurostat data, consumer prices, excluding volatile categories such as food and energy, rose by 5.5 percent in June compared to June last year. However, a rise of 5.4 percent was expected, up from 5.3 percent in May.

Nevertheless, this is the lowest level of inflation since Russia invaded Ukraine. Additionally, inflation in the Eurozone has halved compared to October 2022, when it stood at 10.6 percent.

Maeva Cousing, an economist for the Eurozone, commented to Bloomberg that this inflation data for June indicates tension regarding further interest rate hikes in the Eurozone.

– We expect that core inflation will be the center of discussion during the summer and will prompt the ECB to raise interest rates one last time in September, to a final level of 4 percent – said Cousin.

ECB Governing Council member Klaas Knot stated that monetary tightening after next week’s meeting is ‘anything but guaranteed’, suggesting that officials may soon pause their interest rate hikes.

Other members of the ECB Governing Council, as unofficially reported, consider communication about what will happen after next week’s meetings to be the biggest challenge. Whether the ECB will continue to raise interest rates in July and then in September, as many experts and economists predict, will depend on existing inflation data and that which will be collected over the summer.

Joachim Nagel, a member of the ECB Governing Council and president of the German Bundesbank, described the current inflation in the Eurozone as ‘very difficult’ and a ‘dangerous beast’.

– For more or less all developed countries, core inflation is not falling as it may have in previous cycles – said Nagel.

Although lending in Europe has significantly slowed over the past year due to rising interest rates, the consequences of increased interest rates on businesses and households are just beginning to emerge.

– This time we may need to be a little more patient. The pace of transmission may not be as fast as it has been in the past – concluded Nagel.