Headline inflation in Europe resumed its downward trek in June while core price growth loitered stubbornly near 3% in data released on Tuesday.
The headline figure was broadly in line with estimates, but underlying price pressures are proving difficult to dislodge.
The 2.5% print on the all-items gauge was a tenth lower from May. The core measure, at 2.9%, was unchanged. Economists expected a downtick.
Jeer as you might, but the ECB generally achieved its goal. Inflation’s near enough to target to make a plausible case for the cautious rate cuts which commenced last month.
It’s worth recalling that prior to the pandemic, Europe was struggling to avoid a descent into Japanese-style deflation, so you could argue there are worse things in the world than letting the headline run at 2.5% for a while.
What’s more difficult to argue, though, is that 3% core price growth and, more to the point, 4% services inflation, are tolerable.
As the figure shows, there’s been no progress on the services side in months.
“We still have questions on services inflation [and the June] data do[es] not settle that,” Philip Lane said Tuesday, speaking to the financial press on the sidelines of the ECB’s annual retreat in Sintra.
I don’t think you need (or want) a lot of complicated analysis here. They’re not going to cut again this month. Maybe they will in September. And maybe one more time in 2024 after that depending. For now, there’s no panic about France, and talk of activating the fragmentation tool (the “TPI”) is viewed as wildly premature.
“For the ECB, the summer is set to be relatively boring,” ING’s Bert Colijn said Tuesday, editorializing around the inflation release. “[They] can afford not to carry out another rate cut based on the too-high core inflation reading and labor market strength, and will likely just await incoming data on wages, inflation and growth. They can also see how market turmoil around the French elections plays out.”
On Monday, in a speech opening the proceedings in Sintra, Christine Lagarde said the bank’s “still facing several uncertainties regarding future inflation.” It’ll take some time, she went on, “to gather sufficient data to be certain that the risks of above-target inflation have passed.”
