Euro Area Inflation Dips to 2.8% in June, Giving ECB Room to Wait

Good news for European wallets, at least for now: euro area inflation came in at 2.8% year-over-year in June, confirmed by final data that matched the preliminary estimate exactly. That's a meaningful step down from May's 3.2% reading, and it gives the European Central Bank a little breathing room before it has to make its next big policy call.

The headline number actually went slightly negative on a month-over-month basis (-0.1%), which sounds alarming but is mostly a good thing here — it was driven by a sharp drop in energy price inflation, which fell from 10.8% in May all the way down to 8.5% in June. Cheaper energy flowing through the system is one of the cleaner paths toward lower overall inflation.

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Core inflation — which strips out the more volatile food and energy categories — also cooled, landing at 2.4% versus 2.6% the month prior. Both food price inflation (down to 1.5% from 1.9%) and services inflation (down to 3.2% from 3.5%) contributed to that softer read. Services inflation, in particular, is one the ECB watches closely because it tends to be stickier and harder to bring down.

All of this means the ECB can afford to sit on its hands a bit longer this summer rather than rushing into another rate decision. Inflation isn't accelerating, and the trend is moving in the right direction — slowly, but moving. That said, don't pop the champagne just yet. Renewed tensions in the Middle East could push oil and gas prices back up, which would drag headline inflation higher and potentially trigger the kind of second-round effects — think wage pressures, rising service costs — that central bankers lose sleep over.

For now, though, June's data is a modest win for price stability in the eurozone. Continue reading at Forexlive.