Eurostat released its final June numbers on Friday, confirming that annual inflation eased to 2.8 percent from 3.2 percent in May. This marks the first slowdown after prices started rising again in January, just days before the ECB Governing Council meets on Thursday to decide if another rate increase should follow the first hike in nearly three years.

The breakdown supports a cautious approach. Core inflation, excluding energy, food, alcohol and tobacco, fell from 2.6 percent to 2.4 percent. Energy inflation declined from 10.8 percent to 8.5 percent while services inflation moved from 3.5 percent to 3.2 percent. The headline figure dropped in 22 of the 27 EU countries.

Among the largest eurozone economies, Germany recorded 2.4 percent, France posted 2 percent, Italy reached 3 percent and Spain stood at 3.6 percent.

These figures carry weight given recent events. The ECB raised its deposit facility rate from 2 percent to 2.25 percent in June after the Iran conflict pushed inflation to 3.2 percent in May, the highest level since September 2023.

Renewed Iran tensions

The original driver of that June move has resurfaced. Crude oil prices climbed toward 120 dollars a barrel in March, then fell to roughly 72 dollars after a temporary truce in late June. That agreement has since weakened. Fresh exchanges of strikes between the United States and Iran, attacks on shipping by Tehran, renewed sanctions and a tighter naval blockade have lifted Brent crude back to 87 dollars a barrel.

ING analysts note that the escalation raises the chance of an unexpected hike this week, yet they still forecast a hold with the next increase more probable in September. July is not a projection meeting, allowing policymakers to await fresh forecasts before acting.

Lagarde guidance

At the ECB Sintra forum, President Christine Lagarde stressed that the June increase addressed a real inflation challenge rather than serving as insurance. Projections at the time showed inflation reaching the 2 percent target only late in 2027 and only with further tightening. She ruled out forward guidance, confirming that each decision will rest on incoming data.

The ECB stands alone among major Western central banks in having raised rates. The Federal Reserve kept its range at 3.50-3.75 percent. The Bank of England held its rate at 3.75 percent by a 7-2 vote. The Bank of Japan lifted its policy rate to a 31-year high of 1.0 percent.