EZ Inflation Edges Higher, Remains Well Below ECB Target

- June headline annual inflation increases to 0.3pct

- Core inflation eases to 0.8pct

- Price growth to remain meagre

 

By Eric Culp

European Editor, LiveSquawk News

@EricCulpLS

 

30 June 2020

 

Annual consumer price growth in the Eurozone increased in June on higher costs for energy, but the core rate eased, leaving both well below the European Central Bank’s target of near but below 2pct as the Covid-19 crisis on the Continent abates.

 

Preliminary headline inflation in the euro area rose to an annual rate of 0.3pct in June to surpass the market estimate of 0.2pct and the 0.1pct reading in May, the European statistics office Eurostat said Tuesday.

 

The uptick followed oil prices higher. Futures for West Texas Intermediate (WTI) crude turned negative in April but were more than $7 higher on Monday than at the end of May.

 

The Eurozone’s preliminary core inflation rate slipped to 0.8pct as expected, down from 0.9pct last month.

 

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “A rebound in energy inflation, to -9.4pct from -11.4pct in May, was the primary driver of the small increase in the headline, offsetting a dip in inflation of food, alcohol and tobacco.

 

“The small decrease in the core rate was driven by a 0.1 percentage point fall in services inflation, to 1.2pct, while non-energy goods inflation was unchanged at 0.2pct.”

 

Germany, the largest economy in the single-currency area, said Monday that EU-harmonised annual consumer price growth rose a preliminary 0.8pct compared to the 0.6pct estimate, which was also the final rate for May.

 

Also on Monday, Spain, the Eurozone’s fourth-largest economy, reported a surprisingly strong increase in preliminary annual inflation to -0.3pct, which beat both the forecast of -0.5pct and the -0.9pct reading in May.

 

On Tuesday, the first estimate of inflation from France, the Eurozone’s second-largest economy, dropped unexpectedly to 0.1pct versus the estimate of an unchanged reading of 0.4pct. Preliminary annual inflation from Italy, the third-largest economy, was also worse than forecast, easing to -0.4pct from -0.3pct.

 

Source: Pantheon Macroeconomics

Going low

 

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said consumer price growth this year will remain in the doldrums.

 

“Looking ahead, food inflation may well fall further and our oil price forecasts suggest that energy inflation will remain deeply negative this year. Meanwhile, we think that core inflation will continue to decline.

 

“Admittedly, there might be upward pressure on prices in some sectors in the next few months, as there could be a brief surge in spending as consumers use some of their forced savings. But the German government’s decision to cut VAT will reduce prices, and other governments could soon follow suit.”

 

The German lower house voted on Monday to cut the country’s main VAT rate of 19pct to 16pct from 1 July-31 December of this year. The country’s upper house is expected to approve the measure.