Eurozone Core Inflation Rises, ECB Heightens Caution
Underlying inflation pressures in the eurozone were stronger than initially estimated in May, reinforcing concerns from the European Central Bank that inflation risks have not fully abated despite progress toward a peace agreement in the Middle East.
Eurostat reported on Wednesday (June 17th) that core inflation, which excludes energy and food components, rose to 2.6% from 2.2% the previous month. This figure was higher than the initial estimate of 2.5%, while headline inflation was confirmed at 3.2%.
This revision is important because it indicates that deeper price pressures persist outside the energy and food components. In the context of monetary policy, core inflation is a key indicator for the ECB to assess whether price pressures are spreading to broader sectors or remain subdued.
ECB officials have previously emphasized that the impact of the Iran war on inflation will not disappear quickly even if the peace process begins. Energy disruptions and rising costs caused by the conflict may take time to fully dissipate through the price chain, especially if companies continue to pass on some of the cost pressures to consumers.
ECB Executive Board Member Isabel Schnabel also highlighted in late May that looking solely at headline inflation can be misleading after an energy price shock. This statement aligns with the central bank's focus on underlying inflation measures to gauge more persistent price trends.
For the market, this data could limit the ECB's scope to signal a more lenient policy stance in the near term. Higher-than-preliminary core inflation reinforces the case for policymakers to remain cautious, especially if price pressures from the Middle East conflict have not been fully absorbed.
The focus will now be on further inflation data, energy price dynamics following developments in the Middle East, and the ECB's communication regarding core inflation risks. As long as underlying price pressures persist, the market is likely to view the ECB's policy direction as data-dependent and not yet entirely free from tightening risks. (arl)
Source: Newsmaker.id
