Eurozone June Consumer Inflation Confirmed At 1.3%, Very Slow ECB Policy Shift In Prospect

In the final reading, June Eurozone consumer prices were unchanged for June with the annual inflation rate declining to 1.3% from 1.4% in May. The headline data was in line with consensus forecasts and in line with the flash reading reported at the beginning of July.

The underlying inflation data also matched the flash estimate with an increase to 1.1% from 0.9% previously after a 0.2% monthly increase in prices.

Excluding energy, the year-on-year inflation rate rose to 1.2% from 1.1%.

There was a slight increase in the inflation rate for industrial goods outside the energy sector to 0.4% from 0.3% and this rate was unchanged from the previous year.

The services-sector inflation rate increased to 1.6% from 1.3% in May and compared with a 1.1% rate seen last year.

In a speech late in June, ECB President Draghi stated that inflation had been held down by temporary factors and caused by factors that the central bank would normally look through.

The rhetoric suggests that the ECB will have the confidence to start remove some of the very substantial policy accommodation, especially given the strength of growth within the Eurozone and elimination of downside risks. The gradual increase in services-sector inflation should also encourage a gradual ECB tightening.

Given low inflation and weakness in wages growth, the central bank will still be extremely cautious over removing accommodation and will remain committed to an expansionary policy.

There was little reaction to the data with EUR/USD holding around 1.1450 while bunds extended gains slightly to stand 30 ticks higher on the day.

Tim is a contributing author to He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.