Euro zone inflation drops slightly in June, but ECB in no hurry to make more rate cuts

Inflation in the 20-nation euro zone crept lower to 2.5 per cent in June, but remained stuck above the level favoured by the European Central Bank, which is in no hurry to add more rate cuts after a first tentative reduction in its benchmark rate.

The ECB’s caution in making sure inflation is under control comes as the U.S. Federal Reserve holds off on cutting rates from current highs. The central banks don’t want to belatedly discover that inflation is more stubborn than they thought and reverse course – a mistake that would make inflation harder to wring out of the economy and would ding their credibility into the bargain.

“It will take time for use to gather sufficient data to be certain that the risks of above targe inflation have passed,” Lagarde said in a speech at an ECB conference in Sintra, Portugal. She said that though growth in the euro zone was uncertain, the jobs market remained strong with low unemployment levels. That is a sign that the economy is holding up even with rates much higher than before.

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