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MNI BRIEF: New High For EZ Inflation Muddies Water For ECB

(MNI) London

Eurozone inflation soared to a new high of 8.6% in June, according to a preliminary release from Eurostat, up from 8.1% in May and outpacing market expectations of an 8.5% increase. Month-over-month, prices rose an estimated 0.8%.

The increase was driven in part by higher gas prices, with strong y/y gains seen in Italy and Spain. German harmonised inflation slowed modestly, helped by fuel and travel subsidies, but it wasn't enough to slow the increase across the entire bloc. Core inflation, ex-energy, food, alcohol and tobacco slowed moderately in June, dipping to 3.7% from 3.8% in May. Alone, energy inflation stood at 41.9% y/y, up from 39.1% in May.

The upside surprise will provide further headaches for the ECB ahead of the July 20/21 meeting. The strength of the number will increase the calls of the hawks for a 50 bps hike in July, testing the resolve of President Lagarde who reiterated the intention of a 25 bps hike. It also makes a 50 bps hike in September a near certainty, barring a sudden reversal of price pressures over the summer.

Source: Eurostat

MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
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