Eurozone inflation falls to 2.8% in June, Spain bucks trend with 3.6%

Eurozone inflation dropped to 2.8% in June from 3.2% in May, below the 3.0% expected by analysts (Bloomberg survey), according to Eurostat's preliminary reading. The decline was driven by a slowdown in energy prices, which rose 8.7% year-on-year compared to 10.8% in May, amid a ceasefire between Iran and the United States that eased oil and gas prices Source: elconfidencial. Core inflation (excluding energy, food, alcohol, and tobacco) fell to 2.4% from 2.6% Source: euronewses.

Country divergence

Spain was the only large eurozone economy where inflation did not fall in June, remaining at 3.6% (stable from May), widening the gap with the eurozone average to eight-tenths Source: elmundoes. This contrasts with Germany (2.4%), France (2.0%), and Italy (3.1%) Source: lavanguardia. Spain's persistent high inflation is linked to the gradual withdrawal of the 'social shield' tax cuts on energy, which had temporarily narrowed the differential Source: abces. Among other countries, Lithuania recorded the highest rate at 5.5%, while Malta had the lowest at 1.9% Source: infobae.

What's next for ECB

The data reduces pressure on the European Central Bank (ECB) to raise interest rates further in July, after a 25-basis-point hike in June brought the main rate to 2.25% Source: elespanol. ECB President Christine Lagarde indicated that a forceful response like that after the Ukraine war is not needed, but hawkish members like Isabel Schnabel argue for more increases Source: elespanol. Analysts at ING suggest that if energy prices remain stable, headline inflation could fall to around 2.5% in July, well below the ECB's Q3 forecast of 3.4% Source: elmundoes.