Energy Leads Prices Lower, Still A Ways To Go On Core (1/2)

Italy's headline inflation deceleration in June to a 14-month low was faster than expected by the survey median (HICP at 6.7% vs 6.8% consensus, 8.0% prior; CPI 6.4% vs 6.7% expected, 7.6% prior). We would attribute much of the dovish market reaction to relief vs last month's surprisingly strong preliminary print (recall, May flash HICP came in at 8.1% vs 7.5% survey).

• Many analysts had expected an even bigger decline, largely on energy prices (the broad sell-side analyst headline HICP survey range of 6.4-7.2% Y/Y, with CPI from 6.4-6.9%, tells a story in itself of recent Italian inflation volatility).
• And while the report shows progress on core inflation in the 3rd largest eurozone economy (17% of the Eurozone HICP basket), there is a long way to go before it pulls back to comfortable levels.
• Indeed, energy led the way lower for Italian HICP as expected, to a post-Q1 2021 cycle low of 2% Y/Y from 11.5% prior on the back of a sharp fall in non-regulated energy products. More broadly, housing/utility costs slowed sharply (by 5pp to 10.2%).
• With most intrigue on Friday's Eurozone HICP reading surrounding German services prices, at best Italy's report keeps the bloc-wide 5.6% Y/Y headline / 5.5% core flash estimate expectation in play and perhaps nudges consensus lower a couple of tenths of a point.
• That said, June's Italy deceleration was broad-based, and core CPI slowed to 5.6% vs 6.0% in May / core HICP was 6.0% vs 6.4% prior. HICP peaked at 7.0% in February but there hasn't been a print below 2% since prior to the Russian invasion of Ukraine (Jan 2022).

Italy - June Prelim HICP DataSource: Istat