Eurozone consumer price growth slowed more than expected to 2.8% year-on-year in June 2026, down from 3.2% in May, according to flash estimates from Eurostat released on July 1.
The reading came in below the 3.0% median forecast by economists surveyed by Bloomberg, offering relief from recent inflationary pressures linked to Middle East conflicts.
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Core and Services Inflation Also Ease
Core inflation, which excludes volatile food and energy costs, fell to 2.4% from 2.6% in May.
Services inflation also moderated, dropping to 3.2% from 3.5%.
A key factor behind the slowdown was a rapid decline in energy costs, which fell from 10.8% in May to 8.7% in June.
This followed a US-Iran ceasefire and the reopening of the Strait of Hormuz.
The data has sparked mixed views on future European Central Bank policy. Money markets still see a greater than 50% probability of a quarter-point rate hike by September.
ECB Chief Economist Philip Lane said on Tuesday that the central bank remains vigilant about how recent energy spikes affect food and services.
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Bloomberg Economics noted that the downside surprise weakens the case for consecutive rate increases.
Senior euro-area economist David Powell stated, "Inflation has surprised to the downside and lower oil prices, if sustained, suggest price increases peaked in May.
We think the case for an additional hike has been weakened."
Powell added that while ECB President Lagarde's recent speeches suggest she still supports a September rate hike, it would likely mark the end of the tightening cycle.
Regional central bank officials remain non-committal.
Bundesbank President Joachim Nagel said at the ECB forum in Sintra, Portugal, "I will keep optionalities open for the July and September meetings.
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