Last month inflation in the eurozone and in Switzerland fell more than expected, continuing the decline that began a few months ago. In the eurozone, headline inflation fell to 5.5% year-on-year (YoY) while in Switzerland it reached 1.7% YoY. Nonetheless, both the ECB and the SNB signalled that further interest rate increases are likely.
Indeed, in the eurozone, headline inflation, measured over twelve months, is still well above the 2% objective pursued by the ECB. Several ECB Governing Council members have noted the high growth rate of services prices.
In Switzerland, inflation has returned to the 0-2% range that the SNB uses to define price stability for the first time since January 2022, although it remains at the high end of it. Despite this, SNB Chairman Jordan stressed that inflationary pressures have spread across the economy.
To capture consumer price trends in a timely manner, it is useful to look at the annualised average monthly changes over three months, adjusted for seasonality. This measure shows the level at which the twelve-month inflation rate would converge if that trend were maintained. Charts 1 and 2 show these measures for the prices of services and manufactured goods excluding food and energy, the two components that make up core inflation, in the eurozone and in Switzerland up to June.
In the eurozone, the prices of both components of core inflation, which are more sensitive to the monetary policy stance, are rising at a rate higher than that consistent with the ECB’s 2% target. Although the recent trend in goods prices excluding food and energy is already very close to 2%, the prices of services, which represent more than 40% of the Harmonized Index of Consumer Prices (HICP) basket, are increasing at an annualised rate of more than 4.5% and do not show any moderation.
