By Ed Frankl
Cooling energy prices helped push eurozone inflation lower in June, increasing the likelihood the European Central Bank will refrain from raising its key interest rate for a second meeting in a row later this month.
Inflation in the 21-nation currency area fell to 2.8% from 3.2% in May, the first decline since January, the European Union's statistics agency Eurostat said Wednesday. A consensus of economists polled late last week by The Wall Street Journal expected consumer-price growth at 3.0%.
Energy prices were 1.7% cheaper in June than in May, the data showed, as oil prices declined throughout the month after tensions in the Middle East eased. Annual services inflation also cooled, suggesting that recently higher energy costs aren't passing through significantly into other stickier types of price pressures like wages. Core inflation--which strips out more volatile energy and food prices--fell to 2.4% in June from 2.6% in May.
The print suggests the ECB won't rush into another rate hike, allowing policymakers to wait for fresh macroeconomic forecasts at its meeting in September, when the impact of the Iran war on supply infrastructure could become clearer.
"Inflation in the eurozone is falling--and falling significantly," Stephanie Schoenwald, an economist at KfW Research said. "Provided the situation in the Middle East remains stable, the peak of the energy-driven price surge is now behind us."
ECB rate setters have in recent weeks been balancing the discomfort of inflation still above the bank's 2% target alongside signs that the impact of the surge in energy prices is softening. Oil prices in the last week returned to prewar levels, after the tentative deal announced between the U.S. and Iran to halt fighting.
"Granted, the outcome of the July meeting remains hostage to energy prices, but at this rate it would take a surge in oil prices for the governing council to raise interest rates later this month," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note to clients ahead of the inflation data.
ECB President Christine Lagarde on Monday reiterated that the bank's quarter-point rate increase at its meeting last month was based on forecasts that put inflation above target until 2028, rather than a pre-emptive "insurance hike."
However, she contended that the central bank need not "act with the same force" after the dramatic increases in energy prices in 2022-23 after Russia's full scale invasion of Ukraine. The ECB eventually raised rates to record highs to try to bring inflation under control.
Write to Ed Frankl at edward.frankl@wsj.com