June HICP flash: +1.4% y/y

MNI survey median: +1.5% y/y
MNI survey range: +1.4% to +1.6% y/y

Previous: May +1.6%, Apr +1.5%, Mar +1.4%, Feb +0.9%, Jan +1.0%
—

FRANKFURT (MNI) – Eurozone inflation slowed more than generally
expected in June after hitting a 17-month high in May, pointing to
relatively stable consumer prices on the month, preliminary figures out
of Eurostat showed on Wednesday.

The rise of 1.4% since June of last year suggests that prices fell
by a negligible 0.01% on the month.

Some analysts had warned of downside risks after the flash estimate
for German HICP came in below expected at 0.8%.

A detailed breakdown will not be made available until July 14.
Nevertheless, results from the German states released earlier this week
signaled lower annual inflation rates for energy and food.

After reaching their highest level since 2008 in early May, crude
oil prices have fallen over 17% on average in June. Further downside
price risks were highlighted in a recent International Energy Agency
outlook, which forecast an oversupply of both oil and gas until 2015.

“For the next few years, the oil market is marked by more
comfortable spare capacity than envisaged last year, and the duration of
the current gas glut is set to last beyond 2013, at least in some
regions,” the IEA said.

The weak euro could offset this, however, as manufacturers blamed
the unfavourable euro/dollar exchange rate for much of the further
increase in input prices in June, according to the report purchasing
managers index (PMI).

While annual food inflation declined in at least one Eurozone
member state, the longer-term trend for food and commodities is likely
to be upward, with average prices expected to be higher in the coming
decade than 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.

Outside of industry, a below-average proportion of Eurozone firms
expect positive price trends in the near term, while consumers see price
trends remaining fairly subdued over the next 12 months, the European
Commission’s latest survey showed. In Spain, consumers’ price
expectations have risen markedly ahead of the two-point VAT hike in
July, but are still well below average.

With consumers still hesitant to spend, firms may find it in their
best interest to limit any future price hikes, which could drive
customers away to the competition.

The latest OECD forecasts point to consumer price inflation in the
Eurozone averaging +1.4% this year before slowing to +1.0% in 2011. On
the back of higher commodities prices, the European Central Bank’s staff
revised up inflation projections in June to between 1.4% and 1.6% for
this year and between 1.0% and 2.2% for next year.

“Inflation expectations are remarkably well anchored in line with
our definition — less than 2%, close to 2% — and have remained so
during the recent crisis,” ECB President Jean-Claude Trichet said in a
recent press interview.

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

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