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Eurozone inflation drops to 5.5%
Newsflash: inflation across the eurozone has dropped again, and by more than expected, thanks to falling energy prices.
Consumer prices across the euro area rose by 5.5% in the year to June, down from 6.1% in May.
That’s lower than the 5.6% which economists expected, but still some way over the European Central Bank’s target of 2%.
Statistics provider Eurostat says that food, alcohol & tobacco is expected to have the highest annual inflation rate in June – at 11.7%, down from 12.5% in May.
Industrial goods inflation eased to 5.5%, from 5.8%.
But service sector inflation rose to 5.4%, up from 5.0% in May.
Energy prices fell at a faster rate than last month, with energy inflation dropping to -5.6% from -1.8% in May.
Core inflation, which strips out energy, food, alcohol & tobacco, rose to 5.4% from 5.3% (economists had expected a larger increase to 5.5%).
Key events
Here’s Labour’s shadow chancellor, Rachel Reeves, on this morning’s UK GDP National Accounts:
ONS stats today show UK growth is still low and lagging behind competitors.
Despite Britain’s huge potential and promise the Tories are still taking us down a path of managed decline.
Labour will secure the highest sustained growth in the G7 so families are better off again.
— Rachel Reeves (@RachelReevesMP) June 30, 2023
Britain’s financial watchdog has updated its rulebook to allow mortgage lenders to help strugging customers.
Following last week’s meeting with chancellor Jeremy Hunt and UK banks, the Financial Conduct Authority has changed its rules to support the commitments made by lenders.
The changes mean that lenders will be able to offer borrowers, without an affordability check:
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a switch to interest-only payments for 6 months
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an extension to their mortgage term to reduce their monthly payments, with the option to switch back within 6 months
The FCA says:
The measures are designed to provide relief for people dealing with higher interest rates, but borrowers should be aware that making changes, even temporary ones, will very likely result in higher monthly payments in the future or paying back more overall.
Three eurozone countries have pulled their inflation rates below the ECB’s 2% target:
Britain’s competition regulator has got another technology deal in its sights.
The Competition and Markets Authority (CMA) has concluded that Adobe’s $20bn deal to acquire cloud-based designer platform Figma could mean less choice for designers of digital apps, websites and other products.
The CMA says its initial investigation into the deal has found Adobe’s purchase of Figma could reduce innovation.
Adobe has five working days to submit proposals to address the CMA’s concerns. Otherwise, the investigation will proceed to an in-depth phase 2 review.
The CMA found that Figma has established a substantial share of the market for screen design software and that Adobe has been continuously investing in and competing in this segment.
The CMA found that competition between Figma and Adobe has driven investment in updating and developing screen design software, and this important rivalry could be lost if the deal goes ahead.
“This morning’s data suggest that the Eurozone is on the path to bringing inflation down into more sustainable territory, report Sam Miley, senior economist at the CEBR thinktank:
Though the headline rate of price growth remains more than twice the ECB’s target, the fact that inflation has now slowed for two consecutive months and stands well below the recent peak of 10.6% will be welcomed by policymakers.
However, this is not sufficient for the central bank to halt its course of monetary tightening. Cebr expects the ECB to implement a further hike of 25 basis points to its key policy rates at its meeting next month, in an effort to put even further downward pressure on price growth in the medium term.” –
Home sales tumbled by a quarter in May compared with the same month a year earlier, new HM Revenue and Customs (HMRC) figures show today.
It’s another sign that the property market is cooling this year, as high borrowing costs hit demand.
HMRC reports that there were 74,360 residential transactions in May 2023 is 74,360, 25% lower than May 2022. But, that’s 10% higher more than in April 2023
HMRC say the annual fall “is partly due to higher number of bank holidays in May 2023, but also represents the decline in general market conditions in recent months”.
Andy Sommerville, director at property data and insight provider Search Acumen, says:
“Today’s figures show a continuation of the low transaction levels we have become accustomed to in 2023, with the property market facing significant challenges including rising inflation rates and the high cost of borrowing.
The downturn feels especially acute from the market recovery we witnessed after the coronavirus pandemic, remaining 27% down from a year ago in May 2022 for residential, and a 16% decrease in the commercial sector from the same period.
In financially challenging times, debt continues to be a key driver in transaction volumes. The industry needs a sharp end to sticky inflation to provide market stability across the rest of the year.
Euro zone inflation is “on the way out”, declares Moody’s Analytics’ senior economist Kamil Kovar.
Following this morning’s fall in headline inflation to 5.5%, Kovar says:
“Eurozone inflation declined again in June, continuing on its long and gradual disinflationary path. The main good news in the report was hidden in the core inflation segment. While core inflation inched up to 5.4% on a year-ago basis, this was less than expected given the small base effect from last year.
On a sequential month-to-month basis core inflation increased almost in line with the ECB’s inflation target for the second month running.
With a broad-based deceleration in inflation visible in this release, it is clear that euro zone inflation is on the way out.
However, it remains to be seen whether this will be enough to ensure that the ECB’s last hike will be in July, or only in September.”
Here’s ING’s senior eurozone economist, Bert Colijn, on today’s fall in Eurozone inflation:
Headline eurozone inflation continues to drop quickly on energy price effects, but core inflation ticked back up in June.
This is mainly related to base effects from government support and the underlying trend remains disinflationary. Concerns about persistent wage growth remain though as unemployment remained at historic lows in May.
Headline inflation continues to drop quickly in the eurozone but concerns about persistent wage growth remainhttps://t.co/FWG6dyScCb
— ING Economics (@ING_Economics) June 30, 2023
In another boost for Europe, eurozone unemployment rate remained at a record low of 6.5% in May.
That matches April’s reading, and is down from 6.7% a year ago.
There were 11.014m unemployed people in the euro area in May, a drop of 57,000 during the month.
The youth unemployment rate remained at 13.9% in the eurozone, with 2.226m young people out of work.
El Niño could keep food price inflation high
June’s “flash” figures are encouraging, despite the modest increase in core inflation, says Diego Iscaro, head of European economics at S&P Global Market Intelligence.
But, he suspects it won’t stop the European Central Bank raising interest rates again in July (as the ECB has already signalled).
Iscaro warns that the emerging El Niño climate pattern could prolong food inflation, by creating more extreme weather events, saying:
We expect underlying inflation to continue its downward trend in July, supported by the now evident slowdown in service sector activity.
Energy prices will continue to have a negative impact on headline inflation during the second half of the year, although energy markets remain tight. Similarly, the prospect of extreme weather, amplified by El Niño, poses risks of a more moderate decline in food prices.
June’s figures are unlikely to move the dial on the monetary policy front. A new rate increase in July is a done deal, and there is still a lot of data to be published before September’s meeting. We still expect July to be the peak in rates as economic conditions weaken and inflationary pressures soften.
#Eurozone #inflation fell more than expected in June as energy prices fell further & food price inflation eased, but Core CPI ticks higher. CPI slows to 5.5% YoY in June from 6.1% in May, its lowest rate since the start of last year, below expectations of 5.6%. BUT Eurozone core… pic.twitter.com/PWoLaOzqDp
— Holger Zschaepitz (@Schuldensuehner) June 30, 2023
The contrast between Eurozone and UK inflation is becoming starker, says Neil Shah, director of research at investment research and consultancy firm Edison Group.
Inflation in the UK remained at 8.7% in May – we’ll find out on 19 July how prices changed in June.
But it has been running higher than in Europe this year.
Shah explains:
Britain’s toxic combination of the energy price crisis and deeply embedded labour shortages have resulted in UK inflation being far more stubborn than its fellow G7 economies.
Brexit is partly to blame here, re-shaping the labour market and putting pressure on employers to raise wages to attract talent. Britain’s economy, which is heavily reliant on services rather than manufacturing is another point of difference to the slightly more balanced economies of European countries like Germany.
Progress remains slow, yet the EU’s headline inflation figures are going in the right direction. Will we be able to say the same of UK inflation in July?”
Eurozone inflation drops to 5.5%
Newsflash: inflation across the eurozone has dropped again, and by more than expected, thanks to falling energy prices.
Consumer prices across the euro area rose by 5.5% in the year to June, down from 6.1% in May.
That’s lower than the 5.6% which economists expected, but still some way over the European Central Bank’s target of 2%.
Statistics provider Eurostat says that food, alcohol & tobacco is expected to have the highest annual inflation rate in June – at 11.7%, down from 12.5% in May.
Industrial goods inflation eased to 5.5%, from 5.8%.
But service sector inflation rose to 5.4%, up from 5.0% in May.
Energy prices fell at a faster rate than last month, with energy inflation dropping to -5.6% from -1.8% in May.
Core inflation, which strips out energy, food, alcohol & tobacco, rose to 5.4% from 5.3% (economists had expected a larger increase to 5.5%).
Full story: UK house prices rise unexpectedly in June
Mark Sweney
UK house prices have defied expectations by growing slightly in June but annual prices fell at the fastest rate since 2009 as soaring mortgage costs took a toll on the market, according to Nationwide building society.
The surprise monthly rise of 0.1% reversed a 0.1% fall in May and confounded economist forecasts of a 0.3% fall. It pushed the average cost of a house in the UK up slightly to £262,239.
Prices were 3.5% lower in June compared with a year earlier, the sharpest rate of decline since 2009 but a smaller annual drop than the 4% fall predicted by economists.
More here:
German unemployment rose more than expected in June, showing that difficult economic conditions are taking their toll in the jobs market, Reuters reports.
The Federal Labour Office said the number of people out of work increased by 28,000 in seasonally adjusted terms to 2.61 million. Analysts had expected the figure to rise by 13,000.
Labour office head Andrea Nahles said:
“The more difficult economic conditions are now also being felt in the labour market.
“Unemployment is rising and employment growth is losing momentum.”
🇩🇪 Germany German Unemployment Rate (Jun) $EUR
Actual: 5.7% 🟢
Expected: 5.6%
Previous: 5.6%— PiQ (@PriapusIQ) June 30, 2023
The chronic shortage of housing supply in the UK is supporting house prices, points out Victoria Scholar, head of investment at interactive investor, while the strong jobs market is also stopping prices falling faster.
She adds:
The housing market is suffering on the back of the Bank of England’s aggressive rate hiking path which has sharply pushed up mortgage costs.
Two-year and five-year fixed rate mortgages in the UK are at their highest level for seven months.
Coupled with the pressures from inflation which are squeezing household budgets and landing real wage growth in negative territory, consumers are feeling the pinch, prompting many to turn to the rental market instead of trying to get onto the property ladder.
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