Eurozone inflation slows but drop seems temporary

Inflation in the 19-member eurozone is expected to slow down for the first time in six months as the European Harmonised Index of Consumer Prices (HICP) stood at 1.9 percent in June, down from 2.0 percent in May, Eurostat, the statistical office of the European Union (EU), said in a flash estimate on Wednesday, reported Xinhua.

Inflation is still strongly driven by energy prices, which registered a year-on-year inflation rate of 12.5 percent in June (13.1 percent in May), it said.

"Over the rest of the year, expect energy inflation to decline further if we don't see a more pronounced increase in oil prices again," commented Bert Colijn, senior economist for the eurozone at ING Bank.

Prices in the services sector are declining due in part to the drop in package holiday prices, Colijn said, warning that this transitional trend is likely to be reversed later in the year.

Eurozone inflation has shot up since December 2020, when the HIPC was minus 0.3 percent. It remained at 0.9 percent throughout January and February, and the rose to 1.6 percent in April and 2.0 percent in May. This has been the fastest acceleration in the history of Eurostat's recordings of the eurozone's inflation rate.

"Overall, the small decrease in June headline inflation is not so relevant," Colijn commented. "What's more important is the imminent surge in goods and services inflation. For now, most of the evidence points to this being largely temporary, but upside risks to the inflation outlook haven't been this substantial in years."