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Broad-based Softening In June Underlying Inflation Metrics

EUROPEAN INFLATION
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The ECB’s underlying inflation metrics registered a broad-based softening in June, despite overall core inflation remaining at 2.9%.

  • Although few new policy signals are expected at tomorrow’s ECB meeting, the disinflationary development of underlying inflation metrics should give Governing Council members confidence that inflation is still on its way back to target – even as some components (i.e. services) remain sticky.
  • This development also supports market pricing, with OIS pricing an ~80% implied probability of a 25bp cut through the September meeting.
  • Both headline and core PCCI remained below 2% in June, at 1.71% Y/Y and 1.74% respectively (broadly unchanged to May’s levels).
  • Supercore was 2.9% Y/Y - below 3% for the first time since February 2022.
  • The weighted median measure saw the most notable fall, to 2.2% Y/Y (vs 2.8% in May).

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The ECB’s underlying inflation metrics registered a broad-based softening in June, despite overall core inflation remaining at 2.9%.

  • Although few new policy signals are expected at tomorrow’s ECB meeting, the disinflationary development of underlying inflation metrics should give Governing Council members confidence that inflation is still on its way back to target – even as some components (i.e. services) remain sticky.
  • This development also supports market pricing, with OIS pricing an ~80% implied probability of a 25bp cut through the September meeting.
  • Both headline and core PCCI remained below 2% in June, at 1.71% Y/Y and 1.74% respectively (broadly unchanged to May’s levels).
  • Supercore was 2.9% Y/Y - below 3% for the first time since February 2022.
  • The weighted median measure saw the most notable fall, to 2.2% Y/Y (vs 2.8% in May).