Euro area inflation returns to positive territory in June

Euro area inflation came in positive in June, according to the flash estimate from Eurostat. Inflation in the currency bloc accelerated to 0.1 percent year-on-year. Meanwhile, the core rate accelerated to 0.9 percent year-on-year in June from 0.8 percent in May, stated Eurostat. Decline in prices of energy slowed to 6.5 percent year-on-year as compared with the decline of 8.1 percent in May. This trend is likely to continue in the months to come, aiding in higher rates of inflation.

According to Eurostat, services prices recorded the highest annual rate in June that accelerated to 1.1 percent, as compared with 1 percent in the prior month. Food, alcohol and tobacco prices followed with a rise of 0.9 percent, remained stable as compared with May. Non-energy industrial goods prices rose 0. 4 percent in June, as compared with 0.5 percent rise in May.

Lower wage growth, due to reforms in the labor market and higher labor supply, is expected to keep core inflation weak. Headline inflation is likely to accelerate to around 1.25 percent by the end of 2016, said Nordea Bank in a research report.

The European Central Bank President Mario Draghi anticipates Brexit to subtract anywhere between 0.3 percentage points to 0.5 percentage points of the currency bloc’s GDP growth in the next three years. The risk on the downside to growth is expected to control the central bank’s debate in the short term. However, the acceleration in headline inflation is unlikely to keep the ECB from loosening monetary policy further in the fourth quarter, according to Nordea Bank.