Euro inflation edges upwards to ECB's 2% target

Services inflation was expected to have the highest annual rate in June, the statistics agency said, rising to 3.3%, while food, alcohol and tobacco came in at 3.1% which was down marginally on the previous month. (AP Photo/Bernd Kammerer, File)

Euro area inflation climbed marginally last month, with increases in services underpinning a 0.1% rise in overall price levels.

New figures released by Eurostat on Tuesday showed inflation in the 20-country bloc rose to the European Central Bank's (ECB) 2% target in June, up from 1.9% in the previous month.

Services inflation was expected to have the highest annual rate in June, the statistics agency said, rising to 3.3%, while food, alcohol and tobacco came in at 3.1% which was down marginally on the previous month. 

Meanwhile, annual energy prices continue to fall, though at a slower pace, dropping by 2.7% in June.

Underlying inflation, a closely watched measure that excludes volatile food and fuel prices, held steady at 2.3%, Eurostat found, which was in line with expectations.

Anticipating this fall, the ECB has lowered interest rates from record highs by two percentage points over the last year, with the debate now turning to whether it needs to ease policy further to prevent inflation from becoming too low, given weak growth.

Future outlook

Economists expect one more ECB rate cut to 1.75% before the end of the year, with a period of steady rates then anticipated before possible increases towards the end of 2026.

The outlook, however, depends on the outcome of the ongoing trade negotiations between the EU and the US President Donald Trump's administration, who have until July 9th to confirm an arrangement.

For now, the conflict has reduced price pressures due to its downward pressure on economic confidence, pushing up the value of the euro and lowering energy prices.

Figures released by the Central Statistics Office (CSO) on Monday showed Irish inflation, measured by the harmonised index of consumer prices (HICP) climbed to 1.6% in the 12 months to June, with continuing food price hikes putting growing pressure on consumer costs.

This compares with a 1.4% figure for the previous month and an annual increase of 1.9% for the overall eurozone in the same period. Energy prices are estimated to have fallen by 0.2% in the month, while decreasing by some 1.8% annually.

Meanwhile, food prices continue to trend upwards, with a 0.3% rise in the past month contributing to a 4.3% hike since June 2024. Excluding energy and unprocessed foods, Irish inflation using the HICP is estimated to have risen by 1.9% since June 2024.