Euro area June final estimate inflation revised slightly lower, likely to trend lower from August
Source: FxWire Pro - Commentary / 18 Jul 2018 16:00:20 America/New_York
The final estimates of euro area inflation in the month of June brought minimal revisions from the flash data. The headline data remained the same at 2 percent year-on-year, rising 0.1 percentage point from May and the highest since February 2017. As implied by the preliminary readings, the rise was mainly because of non-core items: energy inflation rose nearly 2 percentage points to 8 percent year-on-year, the highest since the beginning of 2017, while food inflation rose to 2.7 percent year-on-year, the most since 2013.
Consistent with the initial estimate, inflation on non-energy goods also rose from May to 0.4 percent, close to its average for the past year, while a fall of 0.3 percentage point in services inflation to 1.3 percent was also confirmed. However, the net effect of all the revisions was to lower core inflation by 0.1 percentage point from the flash estimate to 0.9 percent year-on-year, slightly below the average of the past year.
This reflected rounding: to three decimal places, the downward revision was tiny. But the change was enough to strengthen the impression that the upwards trend in underlying inflation, so long-awaited by the ECB, remains elusive.
Energy inflation is likely to stay high for a couple of months before easing back gradually due to base effects, with a similar profile expected for food inflation, noted Daiwa Capital Market Research in a report. Meanwhile, core inflation is likely to rebound gradually, not least as higher wage growth feeds through to services inflation. But today’s figures remind that the inflationary impulse from the tightening labor market is expected to be seen very gradually.
“In the absence of marked euro depreciation, we still expect core inflation to average little more than 1.0 percent Y/Y over the coming twelve months. And our central forecast sees headline CPI trending lower from August onwards to less than 1½ percent Y/Y by the middle of next year, before picking up again from late summer 2019 on”, added Daiwa Capital Market Research.
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