June: flat m/m, +1.4% y/y May: +0.1% m/m, +1.6% y/y

FRANKFURT (MNI) – Consumer prices in the Eurozone were overall
unchanged in June, as cheaper energy offset modest price gains in a
small number of major CPI components, slowing annual price growth in
line with preliminary estimates, Eurostat reported on Wednesday.

As a result, the annual HICP rate slowed from 1.6% in May to 1.4%,
as expected.

With oil prices falling on average in June, energy costs dipped
0.4% on the month, narrowing the annual change to +6.2% from May’s +9.2%
print. With motor fuels down 0.8% since May, transport prices also lost
ground, suffering a 0.2% drop on the month and leaving prices up 3.9% on
the year, down from +5.5% previously.

Food prices remained unchanged since May, as costlier fruit offset
cheaper vegetables, leaving prices only 0.2% higher than a year ago,
while alcohol and tobacco prices rose 0.6% m/m, which translated into an
annual inflation figure of +3.7%.

Excluding energy, food, alcohol and tobacco prices, core inflation
in the Eurozone saw a modest acceleration to +0.9% annually. The core
rate most often used by the European Central Bank, which excludes energy
and unprocessed food prices, also came in at 0.9%, suggesting that
underlying price pressure remain subdued due to the ongoing effects of
wide output gaps, low capacity utilisation and moderate wage
growth.

While global energy consumption is expected to grow substantially
over the next few years as the economic recovery gains traction, global
production capacity should be more than sufficient to meet demand, the
International Energy Agency (IEA) said in its latest medium-term oil
market report, suggesting downside price risks for energy in the medium
term.

Furthermore, with the IEA acknowledging that sustained economic
growth was by no means a given, oil demand could possibly be even lower
than is currently forecast.

Food and other commodity prices, on the other hand, are expected to
remain at high levels on average over the next decade compared to the
previous one, the Organisation for Economic Cooperation and Development
and the Food and Agriculture Organisation said in a recent report.

“This forecast is based on the resumption of economic growth, above
all, in developing countries, increased demand due to rising biofuel
production, and anticipated higher costs of energy related inputs,” the
report explained.

Nevertheless, the proportion of firms expecting sales prices to
trend upwards remains below the long-run average in all sectors except
manufacturing, the European Commission’s surveys show.

While the bulk of consumers foresee prices trends above normal over
the next 12 months, their propensity to spend remains at weak levels in
three of the four largest Eurozone economies, which will limit
retailers’ pricing power.

With weak domestic demand expected to offset rising commodity and
import goods prices, overall price growth, as well as core inflation, is
likely to remain relatively stable over the next quarters, three top EMU
statistical research groups said earlier this month.

According to forecasts by the French national statistics office and
the leading private institutes in Germany and Italy, consumer price
inflation in the Eurozone will reach 1.7% in September before slowing to
1.6% by the end of this year.

The Organisation for Economic Cooperation and Development (OECD)
sees inflation averaging 1.4% this year, in line with/up/down from
June’s annual figure, and slowing to +1.1% in 2011.

Stronger commodity prices led the European Central Bank (ECB) staff
to revise up its price projections, which now point to inflation ranging
between 1.4% and 1.6% for 2010 and between 1.0% and 2.2% for next year.

“Inflation expectations remain firmly anchored in line with our aim
of keeping inflation rates below, but close to, 2% over the medium
term,” ECB President Jean-Claude Trichet said at his monthly press
conference. “The firm anchoring of inflation expectations remains of the
essence.”

–Frankfurt bureau: +49 69 720 142; e-mail: frankfurt@marketnews.com —

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