Eurozone Inflation Slows in June, Supporting ECB Pause Outlook
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Inflation across the eurozone cooled more than expected in June, giving the European Central Bank (ECB) additional breathing room to maintain its cautious stance after its historic rate hike cycle over the past two years.
According to preliminary data from Eurostat, the euro area’s annual inflation rate fell to 2.4% in June, down from 2.6% in May. The core inflation rate—which excludes volatile food and energy prices—also edged lower to 2.8%, compared to 3.0% the previous month.
The reading brings inflation closer to the ECB’s 2% target, bolstering expectations that the central bank could hold off on further tightening, especially after its first rate cut in June.
Markets responded positively, with European stocks ticking higher in early trading before giving up some gains later in the day. The euro slipped slightly against the U.S. dollar, trading at 1.065, as investors recalibrated interest rate expectations.
“This is welcome news for the ECB,” said Marie Dechamp, senior economist at Paris-based Rothberg Analytics. “While core inflation remains sticky, the trend is clearly downward, and that supports the view that the ECB will pause further cuts until it sees stronger data on wage growth and services inflation.”
Among the eurozone’s largest economies, Germany reported the sharpest drop in headline inflation, falling to 2.1%, thanks to lower energy prices and easing food costs. France and Italy saw more modest declines, while Spain posted an uptick due to higher housing and transport costs.
The ECB, which has raised rates a total of 450 basis points since 2022 to combat soaring post-pandemic inflation, has signaled a cautious path forward. At its last policy meeting, President Christine Lagarde noted the central bank would remain “data-dependent,” avoiding premature easing.
Still, analysts warn that the path ahead remains uncertain. Wage growth remains elevated in parts of the bloc, especially in the services sector, which could keep core inflation resilient in the coming months. Additionally, geopolitical tensions and a fresh spike in oil prices due to OPEC+ cuts may reverse disinflationary trends.
Bond markets reflected the mixed mood, with German 10-year bund yields slipping slightly to 2.34%, while southern European yields held steady.
Looking ahead, traders will closely watch the ECB’s July policy meeting and updated macroeconomic projections due later this month. While the June inflation print offers relief, policymakers remain cautious as the eurozone economy continues to walk the line between cooling inflation and fragile growth.
