Eurozone Inflation Weakest Since Early 2022, Jobless Rate At Historic Low

Eurozone inflation slowed to the lowest level in more than a year in June on falling energy prices but core inflation ticked up, raising the need for further tightening to get a grip on inflationary pressures.

Separate data showed that the unemployment rate in the 20-nation currency bloc remained at a historic low in May, which in turn sparks inflation concerns.

Inflation eased to 5.5 percent in June from 6.1 percent in May, flash data from Eurostat showed Friday. This was the lowest since January 2022, when the rate was 5.1 percent. Inflation was forecast to ease to 5.6 percent.

Core inflation, which strips out the prices of volatile items like food and energy, advanced to 5.4 percent from 5.3 percent in May.

Nonetheless, the increase largely reflects low base effects caused by the government support scheme. The core rate was below economists’ forecast of 5.5 percent.

“…there is nothing in this release that would deter the ECB from raising interest rates by another 25bp at the meeting in July,” Capital Economics economist Jack Allen-Reynolds said.

On a monthly basis, the harmonized index of consumer prices, or HICP, grew 0.3 percent in June. Detailed results for June are scheduled for release on July 19.

All components of the HICP registered slower growth in June except services cost, which increased 5.4 percent after a 5.0 percent gain in the previous month.

Although food, alcohol and tobacco prices posted a double-digit growth of 11.7 percent, this was slower than the 12.5 percent rise in May. The increase in non-energy industrial goods prices slowed to 5.5 percent from 5.8 percent.

At the same time, energy prices declined sharply by 5.6 percent after a 1.8 percent drop.

Hawkish comment from Sintra this week indicates that the European Central Bank will continue hiking in July and September, ING economist Bert Colijn said.

“By then, the blurring base effects from government support should largely have faded, which means that a pause will become likely,” Colijn added.

The unemployment rate held steady at 6.5 percent in May, in line with expectations. The number of unemployed decreased by 57,000 from April to 11.014 million in May.

The jobless rate among youth in the currency bloc remained at an elevated level in May, but was unchanged from the previous month, at 13.9 percent.

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