The inflation rate in the euro zone hardly changed in June, with the annual rate rising only slightly from +1.9 to +2.0 percent. Two key price components reacted in contrary directions: on the one hand, energy prices continued heading upwards. At first glance, this may seem somewhat counterintuitive given that the oil price has remained slightly below the May price in the June average so far. However, the comparison with the same month of the previous year is decisive for the inflation rate. And the increase here was again a good deal higher in June than in May.
On the other hand, the upward trend in prices for services has decelerated noticeably. In the previous month, a significant boost came in particular from prices for tourism-related services. The main reason for this was most likely the early school holidays in some euro countries. In Germany, for example, the Whitsun holidays mostly took place in May this year in some federal states compared with June last year.
This temporary increase in service prices across the euro zone was absent again in June. The core rate – i.e. prices excluding the volatile components for energy goods and unprocessed foodstuffs – therefore also fell slightly to 1.2 percent compared with the rate in the previous month of +1.3 percent.
In the further course of the year, inflation is likely to stabilise at around the current level or at best fall slightly while oil prices remain persistently high. Nonetheless, the inflationary pressure remains driven to a large extent by energy prices. By contrast, the pace of the core rate, which is closer to economic development, is likely to remain moderate. As annual average for 2018, we therefore expect an inflation rate of +1.6 percent overall.