German Inflation Hits ECB Target at 2% in June

German inflation unexpectedly slowed in June, aligning with the European Central Bank’s 2% target for the first time in nearly a year. According to data released on June 30, consumer prices rose 2% from a year earlier, down from 2.1% in May and below economists’ expectations of a slight uptick to 2.2%. This development marks a significant milestone for the ECB, which has been working to stabilize inflation within the eurozone.

The ECB has lowered its deposit rate eight times since June 2024 to support growth. With inflation now at the target level, officials are expected to pause further rate cuts at their upcoming July meeting. This pause reflects the ECB's cautious approach to monetary policy, balancing the need to support economic growth with the goal of maintaining price stability.

June has been described as a mixed bag for the euro zone’s largest economies. Inflation increased in France and Spain but remained unchanged in Italy. The numbers are unlikely to convince ECB officials to reconsider their assessment that this year’s 2% target will be achieved sustainably. A reading for the 20-nation bloc will be published soon, and analysts expect it to be 2% — a shade better than 1.9% in May.

Many policymakers are more concerned that the region’s limp economy will pull inflation lower. Luis de Guindos Jurado, a Vice-President of the European Central Bank, commented on the topic of discussion. He said growth would likely reach a standstill in the second and third quarters. In Madrid, Jurado raised concerns about the “harsh uncertainty” facing the outlook for Europe. He noted that Europe’s future will largely depend on the trade talks between the European Union and the US. Those talks are scheduled to end next week.

While such uncertainty hints at a slower economic expansion, the inflation outlook is “less clear-cut,” Gabriel Makhlouf, the Governor of the Central Bank of Ireland, said. He added that this has potential upside and downside risks. However, based on Makhlouf’s argument, the overall outlook for inflation in the euro area looks positive in the short to medium term. He further stated that there are signs that inflation will stabilize at about the Governing Council’s medium-term target of 2%.

Meanwhile, in Germany, the outlook for the continent’s largest economy has improved as the new government increases spending on defense and infrastructure. After years of meager growth, forecasters predict the outlays will increase economic growth, especially in 2026 and 2027. This increased spending is expected to boost domestic demand and support economic activity, contributing to the stabilization of inflation.

Unlike in Germany, inflation in Italy unexpectedly remained steady in June, remaining below the European Central Bank’s 2% target for a second month. The national statistics institute said consumer prices were up 1.7% from a year ago. This was similar to May’s 1.7% advance. Analysis from reliable sources on an economist’s survey had forecast an increase of 1.8%. Despite the data showing an increase in France and Spain, ECB officials are sure that inflation will reach their target by 2025. The officials have already cut interest rates eight times in the past year, and markets are not ruling out additional easing even as the 20-nation economy struggles with the fallout from global tariff disruption.

On the other hand, Eurostat is expected to release inflation data for the entire euro area. Concerning this, economists anticipate a marginal uptick to 2%. Notably, Italy’s food, housing, water, and electricity prices increased. Fabio Panetta, the Governor of the Bank of Italy, stated that inflation is nearly under control, but monetary policy is being managed in a situation of growing uncertainty. The ECB's commitment to its 2% inflation target and its willingness to take forceful action when necessary will be crucial in maintaining price stability and supporting economic growth in the eurozone.