Euroland inflation rate hardly moves – many expectations weighing on the ECB

In June, the Euroland inflation rate did not budge from the spot. As a result, the annual inflation rate for consumer prices was identical to the 1.2% seen the prior month. Two countervailing factors impacted on the Harmonised Index of Consumer Prices (HICP): On the one hand, energy prices exerted less pressure on prices, which served to lower the inflation rate. On the other, following the ups and downs of past months owing to the late date of Easter this year, service sector prices rose somewhat more strongly again and were back at their usual level.

In country terms, the dynamism of price trends in those economies that had already published initial estimates for inflation was uneven. In Germany, the HICP remained unchanged at 1.3%, and in France it rose from 1.1 to 1.4%. In Spain, by contrast, inflation slipped from 0.9 to 0.6%. The Italian inflation rate dipped from 0.9 to 0.8%. Common to all countries, the upward pressure on energy prices eased, while service sector prices picked up a little more strongly.

In light of the current inflation data, there will likely continue to be great expectations weighing on the ECB to lower the deposit rate even further from its current level of minus 0.4% at its forthcoming council meeting. It was ECB President Mario Draghi who fuelled the high expectations on the part of the financial markets, as to everyone’s surprise he announced without any real pressure to do so that the central bank would be easing its monetary policy further. Inflation is no doubt not going to pick up by a further lowering of the deposit rate. On the contrary, in coming months we can more likely expect to see inflation dwindle, as energy prices should keep falling. Such moves certainly do not serve to strengthen the credibility of central bank policy.

Rate this article

Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 0

Leave an answer

Your e-mail address will not be published. Required fields are marked *