Euro area: Lower inflation tempers ECB pressure – Nordea

Nordea’s Anders Svendsen and Tuuli Koivu note that lower-than-expected Euro-area inflation in June reduces pressure on the European Central Bank (ECB) and supports a wait-and-see stance for the July meeting. They highlight that energy and food prices contributed to the downside surprise, but still expect second-round effects from the Middle East conflict to keep inflation above target for several years.

Easing risks support wait-and-see

"Lower-than-expected Euro-area inflation in June should ease concerns within the ECB’s Governing Council, increasing the likelihood of a wait-and-see decision at the July meeting."

"Energy prices dropped sharply in June, and another decline is likely in July as the full effects of lower oil prices pass through to consumer prices."

"Looking ahead, we still expect second-round effects from the war in the Middle East to show up in food prices and in core goods prices."

"Thus, we keep a slightly upward-sloping projection for the remainder of the year, while markets have lowered implied inflation rates markedly with the drop in oil prices."

"Our forecast, as well as implied market expectations, points to inflation remaining above target in 2027, while the ECB staff projections show inflation returning to 2% by the middle of next year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)