Inflation rate in EMU just above zero – negative values expected in the second half of the year

According to Eurostat’s provisional calculation, the upswing in consumer prices in the euro zone remained only moderate in June. The inflation rate, measured by the Europe-wide harmonised consumer price index (HICP), was 0.3 percent in June according to the provisional calculation. Thus, the rate was slightly higher than in the previous month at 0.1 per cent. At the same time, the high inflation of food prices eased somewhat and energy prices were again significantly lower than a year ago. For other services and goods prices, the upward trend in prices remains positive but moderate. Due to the corona crisis it was still not possible to collect all price data. In June, a total of 11 percent of the relevant data had to be estimated. This results in a certain error-proneness of the data.
At the country level, the inflation rate in Germany rose from 0.5 to 0.8 percent. In France, it fell from 0.4 to 0.1 percent, while Spain and Italy recorded negative rates of -0.3 and -0.4 percent respectively. Accordingly, there was no uniform price movement.
Even though the downward trend in the inflation rate in the euro zone came to a halt in June, a decline is expected for July. The temporary reduction of the value-added tax in Germany will have a visible effect here. According to calculations by the Federal Statistical Office, the reduction of the regular rate from 19 to 16 percent and the reduced rate from 7 to 5 percent, if passed on in full to consumers, would lead to a 1.6 percent drop in the inflation rate. Although it is not expected that the reduction will be passed on in full to consumers, the price level in Germany is nevertheless likely to fall noticeably. And with Germany’s economic weight of around 28 percent, this will also be reflected in the overall rate of EMU. This will temporarily send the inflation rate in the euro zone into negative territory in the second half of 2020.

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