By Chrysostomos Tsoufis

Under other circumstances, the announcement of Eurostat’s provisional data on June inflation in the Eurozone would have brought, if not smiles, at least moderate optimism. Inflation eased to 2.5% from 2.6% in May, according to analysts’ estimates, and came a step closer to the ECB’s target.

But instead of smiles we had a “tightening”, which was also visible in Christine Lagarde’s body language at the ECB forum in Sintra, Portugal. The reasons are two.

The first has to do with structural inflation, which does not include energy and food, two categories that are volatile and have seasonal characteristics. Core inflation, which is always on the ECB’s radar, has been pegged at 2.9% since March – with the exception of April when it fell to 2.7%.

The second has to do with the inflation of services which also stuck for the second month in a row at 4.1%, which is the highest price this year.

It was these figures that constituted the … tombstone to the hopes of those – few, it is true – who believed in a second consecutive reduction in interest rates.
From Portugal, Lagarde did not hide her concern and focused on the inflation of services, the persistence of which she attributed mainly to the evolution of wages. According to the current system in Europe, negotiations on the evolution of wages in some countries take place every 3 years. So while in recent years there has been a significant increase in inflation, wages have remained stagnant so it is reasonable that the negotiations have “begotten” significant increases in wages that continue to affect the service industry.

The decisions of the ECB expected to determine:

-The figures for the development
– The telephone survey with businesses that will take place at the July 18 meeting
-The research on the granting of loans by the banks
– Research on Small and Medium Enterprises

Based on the above, the September estimates will come out and then – if there is a favorable ground – the ECB will proceed with interest rate cuts, with the market currently discounting 2 more cuts this year. One in October and one in December.

To the “dysthymia” on the price front, we must add the concern from the political developments in France.
And thus the financial markets in Europe found themselves in the red as they were not convinced by the anti-far-right front being attempted in France in view of the second election round. After all, as analysts argue, whether in the case of the far-right or the far-left alliance, the result will be the same. Indecisiveness and therefore a source of uncertainty…

It is not surprising in this context that the economic sentiment index in the Eurozone fell in June mainly due to the weakening of expectations in industry and retail trade. Greek consumers traditionally remain the most pessimistic in the eurozone.