The annual inflation rate in the euro area surprised on the downside in June, giving the European Central Bank more time to assess inflationary pressures as it mulls its next monetary policy decision.
Flash estimates published by Eurostat on Wednesday showed that eurozone inflation eased to 2.8% in June from 3.2% in May, below the consensus estimate of 3%. Month over month, consumer prices were 0.1% lower, following a 0.1% uptick previously.
Energy inflation was the top contributor to the decline in the annual rate, falling to 8.7% from 10.8% in the previous Month, based on the statistics agency's data. Inflation in services as well as food, alcohol and tobacco also decreased, while the prices of non-energy industrial goods remained stable at 0.9%.
Excluding energy, food, alcohol and tobacco, the annual inflation rate stood at 2.4%, lower than May's 2.6% and the expected 2.5%. On a monthly basis, core consumer prices edged up 0.2%.
Among the euro area's top economies, preliminary data showed that annual inflation rates eased in Germany, France and Italy, while consumer prices in Spain held steady year over year.
"The drop in June was in part related to oil price declines, which are starting to translate into lower prices at the pump ... And because gasoline prices respond more slowly to the oil price on the decline than during an increase, this probably means that at current oil price levels, there is still more downward pressure on energy inflation for consumers to come in July," ING said in a note, saying the outlook is becoming more dovish for the ECB.
"But with uncertainty around the Middle East deal remaining, the ECB will appreciate some time to see how things play out and whether any force is still necessary [to fight inflation]," the research firm added.
The ECB is set to decide on its monetary policy on July 23.
