Core inflation in the Eurozone showed an increase in June, according to Eurostat, the statistics agency of the European Union. The data revealed that core consumer prices, which exclude food and energy, rose by 5.5% compared to the previous year. This figure is slightly higher than the preliminary estimate of 5.4% and the reading of 5.3% in May. The rise in core inflation has led economists to predict that underlying inflation will continue to exceed the overall figure until the end of 2024.
Bloomberg’s senior economist, Maeva Cousin, commented on the situation, stating that the expectation of sticky core inflation throughout the summer will dominate the debate and push the European Central Bank (ECB) to implement a final interest rate hike in September. Cousin believes that the terminal rate will reach 4%. The small upward revision to the core reading to 5.5% reflects the tension surrounding the issue.
Despite the recent decrease in headline consumer price growth in the Eurozone, which peaked at 10.6% in October 2022, economists widely anticipate further rate hikes by the ECB due to the persistently high June inflation. The ECB, currently scheduled to meet for a rate revision next week, had already raised interest rates by 25 basis points to 4% on June 15, marking the ninth consecutive increase.
The decision to raise the benchmark rate to its highest level in 22 years was seen as a response to rising inflationary pressures. By increasing interest rates, the ECB aims to curb inflation and maintain price stability in the Eurozone.
Economists and analysts have been closely monitoring inflation indicators, paying attention to both headline and core figures. Core inflation is seen as a more reliable measure of underlying price pressures, as it excludes the volatile food and energy components. The increase in core inflation indicates that prices across a range of goods and services have been rising steadily.
The ECB’s monetary policy decisions have a significant impact on the Eurozone economy. By raising interest rates, the central bank aims to strike a balance between promoting economic growth and keeping inflation under control. However, there are concerns that higher interest rates could lead to a slowdown in economic activity, as borrowing becomes more expensive for businesses and consumers.
The ECB’s upcoming rate revision next week will be closely watched by market participants and economists. The decision to either maintain or further increase interest rates will depend on the central bank’s assessment of inflationary pressures and the overall economic outlook.
In conclusion, the Eurozone has experienced an increase in core inflation, which has raised concerns among economists. Despite the recent decline in headline consumer price growth, the ECB is expected to implement further rate hikes to combat persistently high inflation. The central bank’s upcoming rate revision will provide insights into its monetary policy stance and its efforts to maintain price stability in the region.