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Euro zone inflation slows to 2.5%

Lower rises in energy and fresh food costs are offset by persistently high services prices

A shopper in a Barcelona supermarket. Euro zone inflation slowed to 2.5 per cent in June, but policymakers will remain concerned by strong increases in services prices that partly offset weaker growth in energy and fresh food costs. Photograph: Angel Garcia/Bloomberg

Tue Jul 2 2024 - 11:30

Euro zone inflation slowed to 2.5 per cent in June, but policymakers will remain concerned by strong increases in services prices that partly offset weaker growth in energy and fresh food costs.

The figure for the year to June marked a slowdown from 2.6 per cent in the previous month. It was in line with economists’ forecast of 2.5 per cent in a Reuters poll.

Slowing price rises in the 20 countries that share the euro will provide some relief for the European Central Bank (ECB), which last month started to cut interest rates in expectation of inflation hitting its 2 per cent target by next year.

But rate-setters will still be concerned about persistently high rises in prices in the services sector, which rose 4.1 per cent in the year to June, matching the seven-month high reached in May, according to data published by the European Union’s statistics office on Tuesday.

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Eurostat said energy inflation decelerated from 0.3 per cent in May to 0.2 per cent in June. Inflation of food, alcohol and tobacco was steady at 2.6 per cent. Core inflation, which excludes energy and food to offer a better picture of underlying price pressures, was unchanged at 2.9 per cent.

ECB president Christine Lagarde said the bank would “take time” to gauge if inflation had been tamed because of high uncertainty about “how the nexus of profits, wages and productivity will evolve and whether the economy will be hit by new supply-side shocks”.

“The strong labour market means that we can take time to gather new information, but we also need to be mindful of the fact that the growth outlook remains uncertain,” Ms Lagarde said on Monday evening in a speech to open the ECB’s annual conference in Sintra, Portugal.

Unemployment in the euro zone remained at its record low of 6.4 per cent in May, according to separate data published by Eurostat on Tuesday. The number of jobless people in the bloc increased by 38,000 to 11.1 million. – Copyright The Financial Times Limited 2024

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