Eurozone Inflation Stays at 1.3% in June
Data out at the start of the week showed that Eurozone inflation rose by 1.3% in June (year-on-year), which was in line with analysts’ expectations.
The same data showed a monthly rise of 0.0%, also in line with expectations and slightly above the May reading of 0.0%.
Neither reading was different from the preliminary release of June 30.
That expectations were met largely explains why the Euro was unmoved. The Euro marginally lost ground against the Dollar with EUR/USD going down to 1.1448 from a pre-release 1.1452, however, the effect was marginal.
Against Sterling, EUR/GBP hovers in the 0.8760 vicinity.
Eurozone inflation continues to trundle along at a low level despite the widespread economic recovery in the region, backing up the words of the ECB that "underlying inflation pressures are subdued".
Accommodation services, package holidays and tobacco had the highest annual rate in June in the Eurozone while telecommunications, social protection, and bread & cereal had a dampening effect on the inflation rate.
Country-wise, Ireland, Denmark and Romania had the lowest annual inflation rate as -0.6%, 0.4% and 0.7% respectively.
Lithuania with 3.5%, Estonia and Latvia both with 3.1% recorded the highest rates.
Inflation in the Eurozone was riding higher at the start of the year, when it was circa 2.0% but has since fallen back, and any further weakness could lessen expectations of the European Central Bank normalising policy.
Increased talk amongst central banks, including the ECB, on normalising their monetary policy - which in the case of the ECB means reducing their stimulus – has refocused markets on inflation.
Any slowdown in inflation, incidentally, will weaken the Euro as it will make the ECB more reluctant to unwind stimulus.
However, today’s 1.3% reading is unlikely to change the outlook radically for the governing council, and most analysts still expect the ECB to slowly unwind their extraordinary stimulus regardless.
