Market News

BY Lucy Harley-McKeown

Inflation for the eurozone hit 2% last month, up from 1.9% the month before and right on target for the European Central Bank's (ECB) rate setters, a new flash estimate showed.

Services inflation was estimated to be the biggest driver of price rises, clocking a 3.3% increase. Food, alcohol and tobacco prices also ticked up 3.1%, the release said.

Meanwhile, the heat came out of energy prices, which recorded a 2.7% dip from the year before in June. The data showed France's inflation rate well below the 2% target at 0.8% and Germany's hitting 2%.

The latest data comes a day after the ECB's chief Christine Lagarde warned of increased volatility for prices in an uncertain world.

On Monday, the bank unveiled its updated strategy which said that wild swings either way for inflation would mean "appropriately forceful or persistent" policy action to ensure price growth returns to the target of 2%.

"The world ahead is more uncertain – and that uncertainty is likely to make inflation more volatile," Lagarde told the ECB Forum on Central Banking in Portugal.

Earlier in June, figures showed inflation had fallen below the ECB's 2% target for the first time in seven months in May.

Eurostat confirmed that the consumer prices index dropped to 1.9% in May, down from 2.2% in April, in line with earlier estimates. A year earlier, the rate stood at 2.6%.

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It came as the bloc's central bank cut interest rates by a quarter of a percentage point for the eighth time in a year in June, as rate setters attempt to support the euro economy after the turmoil caused by US president Donald Trump’s trade war.

"While a stronger euro and lower inflation will offer comfort to policymakers, underlying risks remain," said professor Joe Nellis, economic adviser at accountancy and advisory firm MHA.

"The ECB must continue to walk a fine line between supporting economic growth across the eurozone and maintaining a guard against the possibility of another wave of inflation – especially stemming from volatile energy markets, ongoing global trade tensions and service-sector wage pressures."