Italian inflation slows slightly in June on food and services
The desk interprets the slight decline in Italian inflation as fundamentally stabilizing, with headline inflation falling to 3% in June from 3.2% in May, largely driven by decreased fresh food and soft services prices. Per the full note source, the inflation dynamics illustrate resilience despite ongoing energy price concerns stemming from geopolitical tensions. Consequently, if oil and gas price normalization occurs, we could see inflation stabilize in the low 3% range for the remainder of the year. Additionally, the upcoming economic landscape reveals no significant events that might presently disrupt this trajectory.
What the desk is arguing
The current state of Italian inflation suggests a stabilizing economy, albeit with some areas of concern. The slight decline in June's inflation rate reflects an easing in fresh food costs and services, as reported, providing a cushion against rising energy prices that continue to be influenced by geopolitical turmoil.
Supporting this viewpoint, June's core inflation edged up to 1.7%, while goods inflation remained stable at 3.4%. Notably, the widening gap between stable goods and declining services inflation indicates there are no immediate second-round inflationary effects, as observed in the commentary by Paolo Pizzoli, Senior Economist at ING source. The desk maintains that these trends could allow Italian inflation to settle around 3% going forward.
An alternative read might have suggested a more profound impact from energy costs given the Middle East's instability, but the actual data reflects a balancing act that the economy appears to be handling well so far.
Where it sits in our coverage
In the current climate, our consensus forecast for EUR/USD stands at 1.075, with a range suggesting potential variability between 1.04 and 1.12. Key firms projecting into 2026 include:
This stance aligns with our broader view of inflation maintaining a moderate pace, with jpmorgan's outlook targeting the upper end of our forecast range while bofa remains more cautious.
How other firms see it
Firms like jpmorgan and deutsche align with our bullish projection on Euro strength, suggesting confidence in ongoing economic stabilization in the Eurozone. Conversely, firms such as bofa express caution, indicating a more bearish stance on inflation.
Traders should be attentive to the EUR/USD trajectory, particularly in relation to the ECB's future monetary policy moves, as any indication of tightening policy could catalyze a stronger Euro against the dollar.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Italian inflation decelerated to 3% in June, down from 3.2% in May.
- 02Core inflation has risen slightly to 1.7%, suggesting limited second-round effects.
- 03No high-impact economic events are scheduled imminently for Italy.
- 04Fresh food and services prices primarily drove the decline in inflation.
Market implications
Traders should watch if Italian inflation remains below 3% as a key barometer for potential shifts in ECB policy. The EUR/USD rate around 1.075 could be pivotal, indicating further market positioning adjustments as inflation data evolves.
Risks to this view
A deterioration in energy price stability, particularly if there is escalated geopolitical conflict, could unsettle current inflation forecasts and force a reassessment of the Euro's position. Any signs of second-round inflation effects materializing could alter current outlooks significantly.
Older quick take Quick take 12:04 Italian inflation slows slightly in June on food and services The deceleration in Italy's inflation rate is largely due to lower fresh food prices and services inflation, while energy inflation inched up. If the normalisation in oil and gas prices holds – even if not on a straightforward path – headline inflation could hover in the low 3% area over the second half of the year Fresh food prices provided some relief for Italian inflation in June Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Paolo Pizzoli Senior Economist, Italy, Greece The energy shock prompted by the Middle East war since late February has raised doubts about the course of headline inflation in 2026. Uncertainty about the profile has somewhat declined following the Memorandum of Understanding between Iran and the US on 15 June, largely on the assumption that the energy goods push diminishes over the second half of the year if the truce holds and transits through the Strait of Hormuz resume.
Italian inflation data for June, just released by Istat, came in lower than expected at 3% (from 3.2% in May). Interestingly, at the heart of the outcome was a deceleration in inflation for fresh food, cultural and transport services which outweighed the acceleration in regulated and non-regulated energy goods. Core inflation, which excludes energy and fresh food, edged up to 1.7% on the year (from 1.6% in May).
Even if the slight acceleration in energy inflation was expected, the deceleration in services was not. The gap between goods inflation (stable at 3.4%) and services inflation (down to 2.6% in June) widened slightly, suggesting that, for the time being, there is no evidence at all of second-round effects. Looking ahead after the June release, the starting point is a statistical carryover for 2026 inflation at 2.6% for the headline measure and 1.7% for the core measure.
The inflation profile for the rest of the year will still be strongly affected by that of energy goods; here, relying on current spot market prices might lead to overoptimism. According to our commodities strategists, current oil and gas prices seem to be discounting a quick normalisation in the energy market, which is not a given, as it might underestimate the potential for incoming price pressure as countries restore their strategic reserves. If this is true, knock-on effects from energy on other items might still show up down the road, slowing down the disinflationary process.
Looking at pricing intentions as shown in business surveys, we note relatively stable intentions among services businesses, with no apparent upward trend even during the months of ongoing conflict. Manufacturers, more affected by the immediate impact of the war on input costs, saw a jump in their pricing intentions between March and May, but the June reading (with data mostly collected before the US-Iran MoU) showed a slight deceleration. Pressure in the PPI inflation pipeline on consumer goods has so far only shown up in the durable component, with non-durable PPI inflation stable at low levels.
After today’s release, it is reasonable to assume that headline inflation might move towards the low 3% area over the rest of the year, with average inflation for 2026 now estimated at 2.7%. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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