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EMU CommentEuro area inflation expectedly flat at 1.2%, driven by services

  1. Eurozone inflation as expect flat at 1.2%, driven by services
  2. France and Italy illustrate diverging inflation outlooks within the eurozone
  3. Focus on upcoming G-20 meeting
Eurozone inflation was flat, at 1.2%, as expected, driven by services
The flash annual consumer price index y-o-y was, as expected, stable at 1.2 percent in June, with no change from a month ago, whereas core inflation increased barely above expectations to 1.1 percent y-o-y, up from 0.8 percent last month. A significant driver behind this month’s higher core inflation was, once more, services inflation, marking the end of an unusually volatile period related to the timing of Easter this year. On a five-year basis, average core inflation remains below 1 percent, increasing pressure on the ECB to act, following more dovish communications from ECB chief Mario Draghi.
France and Italy illustrate diverging inflation outlooks within the eurozone
In France, inflation beat expectations, at 1.4% y-o-y for June. The rebound, boosted by services, is indicative of continuing momentum throughout Q2. In Italy, inflation decreased to 0.8%, compared to 0.9% the month before, but it fell marginally less than expected. The divergence between those two countries is consistent with broader inflation dispersion within the eurozone since the beginning of the year.
Focus on upcoming G-20 meeting
When ECB chief Draghi recently remarked on the possible need for more monetary easing in the eurozone, the US president reacted publicly with regards to the euro exchange rate. The comments have since fuelled some concern over whether Trump’s trade wars could escalate into currency wars. Market participants are likely to look to this weekend's G-20 meeting for signs of staving off further escalation, in addition to talks related to Sino-US trade relations.


Source: Macrobond

 


Source: Macrobond

Disclaimer

 Erik Meyersson

Erik Meyersson

Senior Economist

Eurozone

erme03@handelsbanken.se

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