MNI 5 THINGS: EMU June Inflation Rises Above Target

By Jai Lakhani

     LONDON (MNI) - Euro Area inflation data released by Eurostat today shows

that headline annual inflation rose a touch to 2.0% y/y in June from 1.9% in

May.

     Here are five things we learned from the data release.

     1. ECB's Plan to Unwind Asset Purchase Programme Supported by Rise: The ECB

has recently indicated that it plans to wind down its Asset Purchase Programme

near the end of 2018. Undoubtedly, the caveat to this plan was an inflation rate

remaining below target, which would weaken the argument for tightening monetary

policy. Therefore, the rise in annual inflation in June to 2.0% will support the

ECB's plans, given that it targets an inflation rate of below, but close to, 2%

over the medium term.

     2. Rising Energy Costs Drove Inflation: The recent rise in oil prices made

its mark on the Euro Area June inflation report, with the largest contribution

to the annual inflation rate coming from energy (0.76 pp), stemming from an 8%

y/y rise in energy prices.

     3. Core Inflation Moved in the Opposite Direction: Core inflation,

meanwhile, dropped in June from 1.4% y/y in May to 1.3%, despite the rise in

headline inflation Essentially, this shows the strong impact of energy price

rises on June's inflation rate, as the core data strips out energy prices.

     4. Germany, Lithuania and the Netherlands Were the Only Three States To See

Inflation Decline in June: Out of all the Euro Area countries, only three

countries saw annual inflation fall relative to May. These were Germany,

Lithuania and the Netherlands which saw a drop in the y/y rate of 0.1, 0.3 and

0.2 pp respectively.

     5. France and Ireland Inflation Rates Remained Unchanged: Only two Euro

Area countries saw stable inflation in June, with both France and Ireland

registering unchanged inflation rates from May (at 2.3% and 0.7% respectively).

It is worth noting that Ireland's June annual inflation rate was the lowest

registered across the Euro Area, with inflation rates also remaining low in

Greece and Denmark, coming in at 1.0% and 1.1% y/y respectively.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

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