In June, euro zone CPI inflation stabilized at 2.7% Y/Y, while the consensus was looking for a pick up to 2.8% Y/Y after a slight decline in May. This outcome is in line with the German data, released earlier this week and indicates that the annual rate of inflation is stabilizing at high levels as oil and commodity prices dropped further in June. The downward surprise in inflation is unlikely to prevent the ECB from raising rates next week, but it will be interesting to see the inflation remarks at Trichet’s press conference as the ECB sounded a bit softer on inflation in June.
Euro zone M3 money supply picked up in May after an unexpected decline in April. On an annual basis, M3 growth accelerated from 2.0% Y/Y to 2.4% Y/Y, while only a slight increase was expected (to 2.1% Y/Y). Lending data show a stabilization in growth of loans to households (3.4% Y/Y) and also growth in loans to non-financials stayed unchanged in May (at 0.9% Y/Y). The monthly flow in loans to non-financials was positive (10 from -2 in April). Monetary and credit growth remains very moderate, but continues to pick slowly, which is an encouraging sign.
German unemployment fell by 8 000 in June to a total number of 2.967 million, less than the expected 17 000 decline. As a result, the unemployment rate stayed unchanged at 7%, the lowest level since the publication of unified German figures. Employment increased by 34 000 in May and the number of vacancies rose by 2 000 in the same month. The downward trend in unemployment has eased somewhat recently. While the figures were slightly weaker than the consensus, there is no doubt that the German labour market remains exceptionally strong.