Eurozone inflation in line with expectations, edges out of deflation in June

Data released by Eurostat confirmed in its final estimate on Friday that the consumer prices in the Euro zone finally defeated the deflationary pressure and swung into the green zone in June, after having battled deflation for four straight months. Euro zone consumer price index in the 19-nation bloc rose 0.2 percent year-on-year y in June, higher from 0.1 percent drop seen in May. Markets had predicted a rise of 0.1 percent in June.

Meanwhile, the core figure, excluding volatile items, rose 0.9 percent year-on-year in June, same as the 0.9 percent rise seen in May. A rebound in energy prices was the principal reason for the small increase in eurozone inflation last month. Energy prices fell 6.1 percent year-over-year, up from a 8.1 percent decline in May. Base effects likely will continue to push this rate higher in coming months.

Eurostat noted, "The largest upward impacts to euro area annual inflation came from restaurants & cafés (+0.11 percentage oints), rents and tobacco (both +0.06 pp), while fuels for transport (-0.41 percentage points), heating oil (-0.16 percentage points) and gas (-0.13 percentage points) had the biggest downward impacts."

“Overall, we think inflation in the euro area will increase to about 1.3 percent to 1.5 percent in the next six-to-12 months,” said Pantheon Macroeconomics.