Markets
are
looking
to
flash
eurozone
inflation
figures
for
June
that
are
due
on
Tuesday,
July
2.
Inflation
is
forecast
to
have
fallen
back
to
2.4%
on
the
year
before,
the
rate
seen
in
April,
according
to
FactSet
consensus
estimates.
Prices
increased
by
2.6%
in
May
from
a
year
ago, above
economist
expectations.
Core
inflation,
which
shows
prices
without
energy
and
food
costs, increased
by
2.9%
in
May
on
a
year
on
year
basis.
“Although
we
still
expect
some
volatility
in
inflation
readings,
June’s
downward
move
would
be
most
welcome,
and
reaffirms
the
European
Central
Bank’s
action
in
cutting
rates
on
June
6,”
said
Michael
Field,
European
market
strategist
at
Morningstar.
“Possibly
even
more
important
than
the
move
in
headline
inflation
would
be
the
drop
in
core
inflation,
because
it
is
the
measure
that
central
bankers
pay
close
attention
to,
given
that
it
strips
out
the
volatile
components
such
as
food
and
fuel,
and
gives
a
more
accurate
picture
of
inflation.”
Service
Inflation
is
the
Last
Mile
In
May,
the
greatest
contributors
to
the
annual euro
area inflation
rate
(HICP)
were
services
(+1.83
percentage
points,
pp),
followed
by
food,
alcohol
&
tobacco
(+0.51
pp),
non-energy
industrial
goods
(+0.18
pp)
and
energy
(+0.04
pp),
according
to
official
data
source
Eurostat.
Service
inflation
rose
from
3.7%
in
April
to
4.1%
in
May,
a
concern
for
policymakers.
“Inflation
is
unlikely
to
recede
until
year
end,
due
to
the
intrinsic
rigidity
of
services
prices,”
said
Ombretta
Signori,
head
of
macroeconomic
research
and
strategy
at
Ofi
Invest
Asset
Management
in
a
note
on
June
24.
“Meanwhile,
wage
momentum,
a
variable
highlighted
by
the
ECB,
stayed
high
in
the
first
quarter
(4.7%
year-on-year,
vs.
4.5%
in
the
fourth
quarter
2023).
Based
on
the
ECB’s
wage
projection
index,
replies
from
companies
to
the
ECB’s
phone
survey,
and
wage
data
from
new
job
offers,
we
can
expect
wage
growth
to
top
off
at
about
4%
this
year
and
not
to
normalise
until
2025.”
When
Will
the
ECB
Cut
Rates
Again?
The
ECB
confirmed
the
data-dependent
approach
to
the
path
of
rates
in
its
latest
economic
bulletin
published
on
June
20,
so
June’s
inflation
data
will
be
closely
followed.
“Despite
the
progress
over
recent
quarters,
domestic
price
pressures
remain
strong
as
wage
growth
is
elevated,
and
inflation
is
likely
to
stay
above
target
well
into
next
year”,
the
ECB
said.
Morningstar’s
Field
added:
“With
the
ECB
enacting
its
first
rate
cut
in
June,
all
eyes
are
on
inflation
numbers
to
ascertain
how
many
more
rate
cuts
will
follow
this
year.
Current
economists’
forecasts
are
pointing
to
two,
with
next
Tuesday’s
inflation
reading
unlikely
to
change
that
prediction.”
The
latest
Eurosystem
staff
projections
for
both
headline
and
core
inflation
have
been
revised
up
for
2024
and
2025
compared
with
the
March
projections.
Headline
inflation
is
expected
to
average
2.5%
in
2024,
2.2%
in
2025
and
1.9%
in
2026.
Core
prices
are
estimated
an
average
of
2.8%
in
2024,
2.2%
in
2025
and
2.0%
in
2026.
ECB
cut
rates
on
June
6,
but
has
not
pre-committed
to
a
particular
rate
path.
“[The
Governing
Council’s]
interest
rate
decisions
will
be
based
on
its
assessment
of
the
inflation
outlook
in
light
of
the
incoming
economic
and
financial
data,
the
dynamics
of
underlying
inflation
and
the
strength
of
monetary
policy
transmission”,
ECB
said
in
its
June
Bulletin.
What
Could
Push
Up
Inflation?
Upside
risks
to
inflation
include
a
more-than-expected
increase
in
wages
and
profits,
but
also
geopolitical
tensions
which
could
push
energy
prices
and
freight
cost
higher,
and
extreme
weather
events
that
could
increase
food
prices.
Goldman
Sachs
expects
euro
area
headline
and
core
inflation
to
be
2.7%
year
on
year
and
2.6%
year
on
year
respectively
in
December
2024.
“We
look
for
euro
area
core
inflation
to
cool,
as
the
pass-through
effects
of
global
supply
chains
and
high
energy
prices
fade,
albeit
with
some
near-term
stickiness,”
the
bank’s
analysts
said
in
a
note
on
June
18.
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