Introduction to Eurozone Inflation
The latest eurozone inflation data is set to be released by Eurostat on July 1, amid a rise in energy prices in June due to the conflict in the Middle East. According to FactSet consensus estimates, headline inflation is forecast to have risen by 2% on June 2024 levels, surpassing May’s reading of 1.9%.
Understanding Core Inflation
Core inflation, which excludes volatile components such as energy and food costs, is expected to have risen by 2.3% year on year in June, matching May’s rate. This data suggests that European inflation is under control, with the numbers aligning closely with the European Central Bank’s targeted level. As noted by Michael Field, chief European market strategist at Morningstar, "European inflation is expected to land on 2% for June, bang-in-line with the European Central Bank’s targeted level."
Breakdown of Inflation Contributions
In May 2025, service inflation remained the primary driver of headline inflation, contributing 1.47 percentage points. Food, alcohol, and tobacco contributed 0.62 percentage points, while energy contributed -0.34 percentage points. Non-energy industrial goods added 0.16 percentage points to the inflation tally. This breakdown highlights the significant role of service inflation in the overall inflation rate.
Potential for Rising Energy Prices
Following Israel’s attack on Iran on June 13, energy prices surged by around 15% compared to the April/May average. Although prices fell after the ceasefire announcement, with Brent prices currently around USD 65 per barrel and TTF natural gas prices around EUR 36 per megawatt-hour, analysts warn of potential future increases. Goldman Sachs noted that scenarios involving reduced Iranian supply or broader disruptions in oil and gas production and transportation could lead to further energy price hikes.
Impact on Headline Inflation
The recent energy price moves are expected to boost year-over-year headline inflation by around 0.4 percentage points over the next year. In an extreme scenario, energy prices could add a further 1.8 percentage points to headline inflation over the coming year. Martin Wolburg, senior economist at Generali Investments, predicts that eurozone headline inflation will hover around 2% over the coming months, citing less favorable disinflation from energy prices and rebounding services prices.
ECB Interest Rate Decision
The European Central Bank’s next monetary policy meeting is scheduled for July 24, following the ECB’s decision to cut its key interest rate by 25 basis points to 2% on June 5. With no meeting in August, over 50% of those polled by Reuters expect the central bank to cut rates once more this year, potentially in September. ECB President Christine Lagarde has reiterated the bank’s ‘data-dependent’ approach, hinting at a pause in rate cuts. Morningstar’s Field notes that the low level of inflation reduces pressure on the ECB, adding that lower interest rates still offer "modest upside potential" to equity markets.
Conclusion
The upcoming eurozone inflation data release is expected to show a rise in headline inflation, driven by increased energy prices and service inflation. While core inflation remains stable, the potential for further energy price hikes and the ECB’s interest rate decisions will be closely watched by investors and analysts. As the eurozone navigates these economic factors, the inflation rate is expected to remain around the 2% target, influencing the ECB’s monetary policy decisions and the overall performance of equity markets.
