Eurozone inflation dips

Wim Duisenberg has sought to cool rate cut talk

Eurozone consumer price inflation dipped slightly in June, easing back from an eight-year high in May, but remained well above the European Central Bank's 2% target.

June consumer price inflation was 3% year-on-year in June, down from 3.4% in May and slightly better than a consensus forecast of 3.1%, according to Eurostat.

Economists expect the ECB to leave eurozone interest rates unchanged at 4.5% when it meets on Thursday.

On a month-on-month basis, consumer prices rose by 0.1% in June in the 12 countries that use the single currency.

No rate cut

Core inflation - excluding volatile food and energy prices - was up 2.1% year-on-year, unchanged from May and above a forecast of 2.0%.

The ECB is due to meet on Thursday

The data will define the choices open to the ECB at its fortnightly meeting on Thursday, according to Carl Weinberg of High Frequency Economics.

"The fall in the headline rate of inflation is clearly good news because for once it's going in the right direction," said Ken Wattrett of BNP Paribas in London.

But he cautioned, "It's by no means a green light for interest rates to come down".

"Nobody in the market expects a move by the ECB at the meeting tomorrow," said Herve Goulletquer of Credit Lyonnais in Paris.

Hopes of a trend

The inflation figures were welcomed by the European Commission as confirmation of its expectation that inflation would slow in the second half of the year.

"We expect it to be close to ECB target by end of year and drop below 2% early next year," said commission spokesman Gerassimos Thomas.

The ECB left rates unchanged at its last meeting on 5 July.

Before that meeting, ECB president Wim Duisenberg sought to cool speculation about a rate cut, saying he believed current monetary policy was "appropriate".

Instead, the bank's focus should be on inflation and monetary discipline, he argued.

"It is our strong belief that if the ECB is successful in maintaining price stability and thereby creating an environment of predictable stability for entrepreneurs, that is the best contribution the ECB can make to fostering growth and employment," he told the parliament.