Eurozone inflation (June, flash) No signs of broadening out

Research evidence excerpt

Eurozone inflation (June, flash) No signs of broadening out

Economics - Data Reactions ● Eurozone

1 July 2026

➢ In Spain, inflation was steady at 3.6% y-o-y, versus consensus expectations for a drop to 3.4%. The INE statement

mentioned lower inflation on fuels but higher inflation on electricity and gas. The latter was probably driven by the expiry of a

VAT cut on utility bills on 1 June. Spanish-style core inflation (excluding unprocessed food and energy products) fell by 0.1pt

to 2.9% y-o-y.

Implications

Today’s release should contribute to easing the ECB concerns about the risks of second-round effects related to the energy shock.

First, the decline in inflation was more pronounced than anticipated, which may contribute to sustaining the recent easing trend in

inflation expectations. Second, details suggest no major signs of energy price rises broadening out to other categories. In particular,

food prices are showing no signs of acceleration and have even been decelerating since April, even if this trend has been led in large

part by unprocessed food prices (which are usually more volatile). In addition, the fall in services inflation confirms that the rise in

May, led by volatile items like air fares and package holiday prices, was not necessarily the start of a worrying trend.

Overall, these developments, combined with the recent decline in inflation expectations, support our view that the ECB tightening

cycle is already over: in our central case, we expect the deposit rate to remain at 2.25% in the coming quarters, with the next move

being a 25bp cut in Q3 2027 (see Global Economics: Crosscurrents, 22 June).

Having said that, with the uncertainty about the situation in the Middle East still elevated, risks on energy prices remain skewed to the

upside.