The latest data indicated a further decline in inflation in the eurozone, which will provide room for further cuts in interest rates by the ECB, said Alfred Kammer, director of the European department of the International Monetary Fund.
The ECB lowered rates in early June, but refused to commit to any further steps, arguing that a reduction in inflation to the target level (2%) by next year is not yet guaranteed. Meanwhile, yesterday's report showed that in June, the consumer price index rose by 2.5% per year after increasing by 2.6% per year in May. Economists also expected an increase of 2.5%. Meanwhile, on a monthly basis, the consumer price index rose by 0.2% after a similar increase in May. The core consumer price index - excluding energy, food, alcohol & tobacco - rose by 2.9% per year, as in May. Economists had expected an increase of 2.8% per annum.
"Overall, the latest economic data confirm the forecast and indicate that disinflation is still broadly in line with our expectations. This means that the ECB should continue to gradually ease monetary policy," Kammer said, adding that the ECB could reduce the deposit rate from 3.75% to 2.5% by the third quarter of 2025.
Market pricing suggests that the ECB deposit rate will reach 2.75% in the third quarter so the IMF is advocating a somewhat faster easing cycle than investors now anticipate.
Kammer said that there is already a softening in the labor market, and this will help lower prices.