German headline inflation rises year-on-year in June, euro area inflation likely to have dropped to 1.3 pct

Euro area’s three of the four largest member states released their final June inflation figures on Thursday, with all aligning closely with the flash estimates released a few weeks ago. Germany’s consumer price inflation rose 0.1 percentage point to 1.5 percent year-on-year as higher inflation of food and services more than fully countered the effect of lower prices of energy and clothing.

Meanwhile, consumer price inflation in France dropped by 0.1 percentage point to 0.8 percent year-on-tear, the lowest rate in 2017, as declines in energy, food and mobile phone tariffs countered the effect of higher prices of certain other services, including airfares. Also, Spanish CPI came in line with the flash figure, falling 0.4 percentage points to 1.6 percent year-on-year because of a particularly marked decline in energy prices, excluding which inflation picked up.

This the inflation figure for the whole of euro area, which is set to come out next week, is likely to affirm the 0.1 percentage point drop in the headline figure to 1.3 percent year-on-year, the lowest since the end of 2016, said Daiwa Capita Markets Research. However, the 0.2 percentage point rise in core inflation to 1.1 percent year-on-year is also likely to be affirmed.

Core inflation will have to rise considerably higher in months ahead if the ECB is to return the currency bloc’s CPI back to the target close to 2 percent year-on-year on a self-sustained basis. German core inflation will need to be above 2 percent year-on-year, added Daiwa Capital Markets Research.

At 22:00 GMT the FxWirePro's Hourly Strength Index Euro was slightly bearish at -56.1936, while the FxWirePro's Hourly Strength Index US Dollar was slightly bearish at -61.9794. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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