Germany's June inflation unexpectedly fell to 2%, reaching the European Central Bank's target for the first time
Germany's June CPI rose 2% year-on-year, lower than May's 2.1% and the expected 2.2%, marking the first time in nearly a year that it has reached the European Central Bank's target level. However, compared to the pressure of rising prices, many decision-makers are more concerned that economic weakness may drag down inflation. The market expects the ECB to pause its rate cuts at the July meeting
Germany's inflation rate unexpectedly fell to 2% in June, reaching the European Central Bank's target level for the first time in nearly a year, which is better than market expectations.
On the 30th, the German Federal Statistical Office released data showing:
- Germany's June CPI year-on-year preliminary value 2%, expected 2.2%, previous value 2.1%
- Germany's June harmonized CPI year-on-year preliminary value 2%, expected 2.2%, previous value 2.1%.
This data provides a positive signal for ECB policymakers, although inflation rates in France and Spain have still risen, while Italy remains stable. Analysts expect that the overall inflation rate in the Eurozone, to be announced on Tuesday, will rise slightly from 1.9% in May to 2%.
The market currently expects that ECB officials will pause interest rate cuts at the July meeting. Since June 2024, the ECB has cut the deposit rate eight times, currently maintaining it at 2%.
Eurozone Economic Outlook Still Faces Challenges
Compared to price increase pressures, many policymakers are more concerned that the region's economic weakness may drag down inflation. ECB Vice President Luis de Guindos stated on Monday that economic growth may be nearly flat in the second and third quarters.
Speaking in Madrid, he complained about the "brutal uncertainty" surrounding Europe's outlook, noting that Europe's fate will largely depend on the outcome of trade negotiations between the EU and the United States. These negotiations are scheduled to conclude next week.
Gabriel Makhlouf, Governor of the Central Bank of Ireland, stated in a speech on Monday that while this uncertainty points to a more moderate economic expansion, the impact on inflation is "less clear," with potential upside and downside risks. Makhlouf said:
"However, from the near to medium term, the overall core outlook for inflation in the Eurozone is generally favorable, with signs indicating that inflation will stabilize around the Governing Council's medium-term target of 2%."
In Germany, the outlook for the largest economy on the European continent has improved as the new government increases defense and infrastructure spending. Forecasters believe that after years of stagnation, this spending will boost growth, particularly in 2026 and 2027.
Market Reaction
After the announcement, the euro against the dollar showed little short-term volatility, currently reported at 1.1723.
