According to Eurostat, inflation in the eurozone was 5.5% in June. As for the underlying index, which excludes energy, food, alcohol and tobacco, has rebounded a little faster than announced in the rapid estimate, also increasing by 5.5%.
Such figures reinforce the impression that inflation is well established and difficult to dislodge, despite the efforts of the European Central Bank. The gaps within the euro area are extensive. Countries that have been active in supporting the private sector through subsidies, price caps and all kinds of aid are experiencing reduced inflation, sometimes even in line with ECB objectives, as is the case in Spain and Belgium (both with inflation at only 1.6%). But elsewhere, inflation is still between 5% and 8%, indicating that the erosion of household purchasing power continues.
Three main factors contributed to the price increase at this stage: food, alcohol and tobacco, whose prices rose by 11.6%—those of industrial goods excluding energy (+5.5%) and those of services (+5.4%). On the first two, the trend has been firmly downward in recent months, and the progression is far from the peaks reached this Winter at 15.7% and 6.8%, respectively.
There is every reason to believe the decline will continue on these fronts. On the other hand, the 5.4% increase in services represents a new peak. This is service price inflation, stabilising at a high level and may not return to a downward trend soon. Especially as employees do what they can to preserve their purchasing power and companies do the same for their profit margins.
At the same time, except for a global recession that would still weigh on hydrocarbon prices, most of the deflationary effect of lower energy prices is behind us.
The European Central Bank, therefore, needs more room for manoeuvre in its monetary policy. It will raise its key interest rates again by 0.25% on 27 July and should continue there, again tightening its policy in September.
Now better paid than before, Eurozone sovereign debt integrates our portfolio. We also buy some individual Eurozone shares, which are still interesting. On the other hand, eurozone equity funds do not integrate our diversified portfolio at this stage.
