Euro area inflation eases
Euro area inflation continued to moderate in June, providing further evidence that the surge in prices triggered by higher energy costs earlier this year is beginning to subside. Annual inflation decreased to 2.6% from 3.2% in May, marking its lowest level since February and moving closer to the European Central Bank’s (ECB) 2% target.
The decline was driven largely by softer energy prices, with energy inflation expected to ease from 10.8% to 8.5%. Underlying price pressures also showed signs of improvement, as core inflation, which excludes the more volatile energy and food components, declined from 2.6% to 2.4%. Services inflation moderated to 3.2% from 3.5%, while food, alcohol and tobacco inflation fell to 1.6% from 1.9%.
US inflation eases more than expected
US inflation eased more than expected in June, as the Consumer Price Index (CPI) fell to 3.5% year-on-year, from 4.2% in May.
On a monthly basis, consumer prices declined by 0.4%, marking the largest drop since April 2020. This decline was primarily driven by lower energy prices, with gasoline prices falling by 9.7% between May and June.
Core inflation, which excludes more volatile components such as food and energy, also moved lower on a yearly basis to 2.6%, from 2.9% in the previous month.
The softer-than-expected inflation reading has caused investors to scale back expectations of near-term interest rate hikes, supporting the Federal Reserve’s decision to leave rates unchanged for as long as possible despite persistently higher inflation readings.
UK economy returns to growth
The UK economy returned to growth in May, as GDP expanded by 0.1% month-on-month in May, following a 0.1% contraction in April. This expansion was in line with market expectations and was largely driven by the services sector which grew by 0.3% over the last month.
Scientific research and development was the strongest performer, rising by 5.1%, helping to offset weaknesses in production and manufacturing which contracted by 0.5%, and construction which fell by 0.8%.
While these figures might suggest that the UK economy has weathered the recent energy price rises, economists remain cautious about the economic outlook. Growth remains fragile amid tighter financial conditions and ongoing geopolitical disruptions. Sustaining economic momentum will remain the primary challenge for the incoming government in the coming months.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).
