EUROPEAN INFLATION: Limited Underlying Services Disinflation In June

Eurozone final June HICP inflation was essentially unrevised at 1.99% Y/Y (vs 1.97% flash, 1.89% prior). Core inflation was 2.31% Y/Y, up from 2.29% in the flash and 2.28% prior, with services revised up to 3.32% Y/Y (vs 3.28% flash, 3.22% prior).  Within the services basket, there was only slight underlying disinflation progress to note. However, this is not expected to be an impediment to one more 25bp ECB cut this year, with a terminal rate of 1.75% embedded within the June macroeconomic projections and still the clear base case in market pricing.

• As expected, there were modest Y/Y rebounds in volatile airfares (0.44% Y/Y vs -2.96% prior), package holidays (1.42% Y/Y vs 0.91% prior) and accommodation services (3.91% Y/Y vs 3.15% prior). This is related to the start of the summer holiday season.
• Looking at less volatile parts of the basket, miscellaneous services (which includes personal care, insurance and financial services) eased to 3.73% Y/Y (vs 3.86% prior), while services related to recreation and personal care ex package holidays/accommodation was broadly steady at 3.75% Y/Y (vs 3.72% prior). Services related to housing was also little changed at 3.26% Y/Y (vs 3.28% prior).
• Core goods trends remain fairly benign, with clothing and footwear inflation pulling back to -0.29% Y/Y (vs 0.10% prior) and furniture and household equipment easing to 1.94% Y/Y (vs 2.21% prior). Core goods inflation overall was 0.52% Y/Y (vs 0.50% flash, 0.61% prior).
• Food inflation continued its gradual acceleration, printing at 3.07% Y/Y (vs 3.11% flash, 3.19% in May, 2.31% in January). 
• Energy inflation was revised up to -2.59% Y/Y (vs -2.75% flash, -3.57% prior).
• The proportion of ECOICOP subcomponents with annual inflation rates between 1-3% was unchanged at 28%.