Eurozone Inflation Eases Slightly in June, ECB Remains Cautious

Eurozone inflation cooled slightly in June, but the European Central Bank (ECB) is expected to maintain its cautious stance on interest rate cuts due to rising service prices.

Consumer prices rose 2.5% year-on-year in June, down from 2.6% in May, according to the European Union’s statistics agency. Core prices, excluding energy and food, increased by 2.9%, matching May’s figures and exceeding economists’ expectations.

Despite easing inflation in Germany, France, and Spain, service prices, including restaurants, holidays, and healthcare, remained 4.1% higher than a year ago. ECB policymakers are concerned that these increases are driven by wage hikes, which may persist until workers stop demanding higher pay.

ECB Chief Economist Philip Lane expressed ongoing concerns about services inflation and indicated the need for more time to assess the situation. Last month, the ECB cut interest rates for the first time in five years but signaled that further cuts are unlikely soon.

ECB President Christine Lagarde emphasized the need for vigilance but noted that the strong job market, with a record-low unemployment rate of 6.4% in May, reduces the urgency to lower rates.

The eurozone’s services sector continued to grow in June, despite political concerns over rising far-right support and a sluggish manufacturing sector still recovering from the impact of Russia’s invasion of Ukraine and weak export demand.