ECB President Lagarde signals vigilance as Eurozone inflation reaches target

BRUSSELS: Inflation pressures in the Eurozone increased in June, aligning with forecasts and reaching the European Central Bank’s (ECB) 2% target. ECB President Christine Lagarde adopted a cautious tone during her opening remarks at the central bank’s annual symposium in Sintra.

In June, the annual inflation rate in the euro area edged up to 2%, the first increase since January, reinforcing the ECB’s cautious approach as it continues its disinflation efforts. A preliminary estimate from Eurostat released on Tuesday indicated consumer prices grew by 2% year-over-year, slightly higher than May’s 1.9%, matching economist expectations.

On a monthly basis, inflation accelerated to 0.3% from a flat reading the previous month. Core inflation—excluding volatile items like food and energy—remained steady at 2.3% annually and increased by 0.4% month-on-month, highlighting ongoing underlying price pressures, especially in the services sector.

Services inflation, a key indicator for the ECB, increased to 3.3% in June from 3.2% in May, with a notable monthly rise of 0.7%, indicating persistent demand-driven inflation as summer begins. Among the main contributors to inflation, energy prices stayed at -2.7%, a moderation from May’s -3.6%. Food, alcohol, and tobacco inflation slowed slightly to 3.1%, while non-energy industrial goods saw a 0.5% annual rise.

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At the country level, Estonia experienced the highest inflation rate at 5.2%, followed by Slovakia at 4.6% and Croatia at 4.4%. Conversely, France and Cyprus had the lowest rates at 0.8% and 0.5%, respectively. Monthly inflation was strongest in Greece, up 1.3%, while Finland was the only member to record a price decline of -0.2%.

During the ECB Forum on Central Banking in Sintra, Lagarde reaffirmed the bank’s commitment to maintaining price stability. She acknowledged that much of the recent policy challenge involved balancing inflation stabilization amid economic uncertainty. While inflation has peaked higher than in previous soft-landing episodes and decelerated quickly, Lagarde emphasized that the path ahead remains uncertain, citing unresolved issues around wages, profits, productivity, and potential supply shocks.

She concluded with a call for vigilance, stating, “Our work is not done,” and echoed Sir Bobby Robson’s famous quote: “We will not rest until the match is won and inflation is back at 2%.”

Meanwhile, the euro strengthened above $1.18 against the dollar, its highest level since September 2021, and is on track for a tenth consecutive session of gains—the longest streak since 2003. The euro has appreciated nearly 14% year-to-date, heading for its strongest year in over two decades.

In financial markets, equities showed slight declines mid-morning. The Euro Stoxx 50 dropped 0.15%, with notable declines in Saint-Gobain (-1.7%), Deutsche Bank (-1.6%), and Mercedes-Benz (-1.4%). On the positive side, Adidas and LVMH rose by 2.7% and 2.4%, respectively. National indices also fell; Germany’s DAX declined 0.2%, France’s CAC 40 slid 0.4%, and Italy’s FTSE MIB decreased 0.6%.