Eurozone inflation rose slightly to the 2% target set by the ECB last month, marking the end of an era of soaring prices and a shift in policymakers' focus to economic fluctuations caused by trade wars. The inflation rate of the 20 Eurozone countries slowly rose to 2.0% in June from 1.9% in May, in line with market expectations. Continued declines in energy and industrial prices offset the rapid rise in inflation in the service sector. Excluding volatile food and energy prices, the core inflation rate stabilized at 2.3%, in line with expectations. Anticipating a fall in inflation, the ECB has cut interest rates by 2 percentage points from historic highs in the past year. Given the weak economic growth, the policy debate has turned to whether further easing is needed to prevent inflation from falling too low. The cost trend in the service sector is particularly critical — prices in this sector have remained high for many years. Last month, service sector inflation rose slightly from 3.2% to 3.3%, rising 0.7% month-on-month, confirming the hawkish official argument that “domestic inflation is still high” and reducing the risk of inflation falling below target.

Eurozone inflation rose slightly to the 2% target set by the ECB last month, marking the end of an era of soaring prices and a shift in policymakers' focus to economic fluctuations caused by trade wars. The inflation rate of the 20 Eurozone countries slowly rose to 2.0% in June from 1.9% in May, in line with market expectations. Continued declines in energy and industrial prices offset the rapid rise in inflation in the service sector. Excluding volatile food and energy prices, the core inflation rate stabilized at 2.3%, in line with expectations. Anticipating a fall in inflation, the ECB has cut interest rates by 2 percentage points from historic highs in the past year. Given the weak economic growth, the policy debate has turned to whether further easing is needed to prevent inflation from falling too low. The cost trend in the service sector is particularly critical — prices in this sector have remained high for many years. Last month, service sector inflation rose slightly from 3.2% to 3.3%, rising 0.7% month-on-month, confirming the hawkish official argument that “domestic inflation is still high” and reducing the risk of inflation falling below target.