Eurozone HICP Preview: Banks forecasts, a decline in headline inflation, core likely remained strong

For the euro area flash June HICP, we expect it to come in at 5.8% YoY. We expect the monthly pace of food inflation to slow down towards 0.2% MoM, while energy inflation may pick up a little at 1% MoM. We expect euro area June flash core HICP at 5.7% YoY.

We expect headline inflation continued to slide rapidly to 5.3% from 6.0% in May.

While momentum in EZ and German core inflation likely remained strong in June, base effects from last year's 9-euro ticket will likely overstate the strength in the YoY rates. Energy should not have much of an impact on the German print, but base effects will likely weigh heavily on EZ headline HICP (TDS: 5.6% YoY).

We forecast a fall in headline Euro-area inflation from 6.1% to 5.6% in June, in large part the result of lower energy prices and a smaller rise in food prices relative to a year ago. We’re assuming a continuation of core price momentum being stronger than normal, albeit weaker than in recent months. On top of that, looking back to a year ago (June 2022) core prices didn’t grow that strongly on a % m-o-m basis – base effects should thus push up on core inflation in June, and we look for what we think will be a temporary rise from 5.3% to 5.5% amid a generally declining trend.

Falling food and energy inflation should help HICP inflation ease again in June to 5.6%, down from 6.1% in May. Conversely, we think core inflation could rebound to 5.6%, up from 5.3%, with risks tilted to the upside. 

For the first time in many months, the Eurozone CPI surprised to the downside in May. Headline inflation slowed more than forecast to 6.1% YoY, while core inflation also slowed to 5.3%. For June, the consensus forecast is for headline inflation to slow further to 5.6%, while core inflation is seen ticking up to 5.5%. Another significant downside surprise might be enough to persuade ECB policymakers to pause their rate hike cycle in July, at a Deposit Rate of 3.75%. However, if inflation surprises to the upside, the case for further tightening beyond July could gather momentum.

We expect headline HICP to take another step down to 5.7% in June, the lowest since Jan-22 but mostly reflecting favorable base effects in energy. But core CPI is set to re-accelerate to 5.6% YoY, partly due to base effects though returning to pre-May monthly trend (seasonally adjusted.) of 0.4% later on. 

We expect headline inflation to fall from 6.1% to 5.6% YoY and core inflation to rise from 5.3% to 5.5% YoY in June. M3 money supply is likely to slow further from 1.9% to 1.5% YoY in May.