Euro area headline inflation remains unchanged in June, core rate accelerates

The euro area core inflation accelerated in June. Core rate rose to 1.1 percent from May’s 0.8 percent. However, this is not the start of a sustained rise in underlying inflation as hoped for by the European Central Bank. Instead, it is only due to the late timing of Whitsun this year. In July, the core rate is likely to ease again to 1 percent, according to Commerzbank in a research report. The headline inflation rate stayed at 1.2 percent in June.

The latest fluctuations in the core rate are because of the later timing of Easter and Whitsun. Therefore, the holiday-related price rises of package holidays at Easter and Whitsun this year took place in April and June and not in March and May as they did last year. The considerable rise in the price of package holidays stimulated the core rate in June.

The underlying price pressures continue to be weak. It is also unlikely to increase in the further course of the year. In spite of healthy domestic demand, it is apparently still difficult for firms to pass on higher wage costs to consumers.

“Today's price data is likely to support the recent sharp drop in inflation expectations in the market. This is because the headline inflation rate of 1.2 percent was still way below the ECB's inflation target of just under 2 percent. We expect the ECB to cut its deposit rate by 10 basis points to -0.5 percent in the third quarter”, added Commerzbank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bullish at 111.043 while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -113.038 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex