Euro-zone underlying inflation figure for June revised upwards

Euro-zone underlying inflation, the key measure of price gains for the European Central Bank, accelerated more than initially reported in June, cementing the interest-rate increase widely expected next week.

Core consumer prices, stripping out volatile elements such as food and energy, rose 5.5 per cent from a year earlier, Eurostat said on Wednesday. That compares with a preliminary estimate of 5.4 per cent and a reading of 5.3 per cent in May.

The main gauge of inflation was confirmed at 5.5 per cent – the lowest level since before Russia invaded Ukraine.

With headline inflation now having almost halved since its 10.6 per cent peak in October, officials have shifted focus to the narrower measure, which is proving more stubborn. While Wednesday’s upward revision could provide ammunition for ECB hawks keen for rate hikes to continue into the autumn, some have recently struck a softer tone.

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Speaking Tuesday, Dutch central bank chief Klaas Knot said core inflation appears to have “plateaued,” describing any action beyond July as “a possibility but by no means a certainty.” ECB vice-president Luis de Guindos had earlier showed some optimism that underlying inflation may be peaking.

Communication will be key for the ECB after the meeting scheduled for July 26th and 27th, with people familiar with the governing council’s thinking suggesting that striking the correct tone in telegraphing their future intentions will be the biggest challenge.

The euro-zone revision came as UK inflation eased more than expected to 7.9 per cent in June, providing some relief for the Bank of England ahead of its own decision on interest rates next month.

Annual inflation was down from 8.7 per cent in May, the UK office for national statistics said on Wednesday. It was lower than the 8.2 per cent forecast by economists polled by Reuters, ending a four-month period of price growth exceeding forecasts.

It was also in line with the 7.9 per cent forecast by the Bank of England in May.

Core inflation, which strips out volatile food, energy, alcohol and tobacco prices, also declined to 6.9 per cent from a 31-year high of 7.1 per cent in the previous month. Analysts expected it to be unchanged.

Services inflation eased to 7.2 per cent from a 31-year high of 7.4 per cent in May.

Both core and services inflation are closely watched by policymakers to monitor underlying and domestic price pressures and to decide on interest rates. – Copyright The Financial Times Limited 2023/Bloomberg