Prices are now rising in Finland at the slowest rate in the entire euro area, when looking at the index calculated according to EU rules

Consumer prices became more expensive in Finland in June, according to preliminary data of the harmonized consumer price index, by 0.6 percent compared to a year ago, Statistics Finland reports. In May, the corresponding inflation was 0.5 percent, according to Statistics Finland.

Food and non-alcoholic beverages became cheaper by 0.4 percent from a year ago, according to Statistics Finland. Housing, water, electricity, gas and other fuels, on the other hand, became cheaper by 0.9 percent.

Alcoholic beverages and tobacco were 4.3 percent more expensive than a year ago. Clothing and footwear, on the other hand, became more expensive by 3.4 percent.

Education became the most expensive, where, according to Statistics Finland, a 7.9 percent increase in prices was measured in June compared to last year.

On a monthly basis, there was no change in consumer prices from May to June.

The harmonized consumer price index does not include, for example, owner-occupied housing, gambling or interest on consumer and other loans. The consumption items and compilation rules included in the harmonized consumer price index are defined by EU regulations.

Finland Business economist Roope Ohlsbom’s according to Finland’s low inflation partly explains the increase in consumers’ confidence in their own economy and in the Finnish economy during the spring, when inflation in Finland has been controlled and consumers’ purchasing power is increasing.

According to Ohlsbom, the recent inflation figures show again that the current interest rate level of the European Central Bank ECB is still too high for Finland.

“The rate of change in consumer prices in Finland has clearly fallen below the European Central Bank’s two percent inflation target due to the tight interest rate policy that limits demand,” Ohlsbom writes in his email comment.

According to Ohlsbom, the inflation situation in the euro area is unclear, so it is uncertain how many and to what extent interest rate cuts will be seen in the near future.

“For example, just one decrease of 0.25 percentage points during the rest of the year would be too slow a pace without helping the Finnish economy. From Finland’s point of view, it would be necessary for interest rates to be lowered as quickly as possible,” Ohlsbom writes.

Size in the euro area, according to preliminary data of the harmonized index, consumer prices rose by 2.5 percent year-on-year in June. The inflation rate decreased slightly from May’s reading, which was 2.6 percent.

For several months now, Finland’s inflation rate has been among the slowest of the eurozone countries in the harmonized index. In June’s preliminary figures, Finland’s inflation rate of 0.6 percent is the slowest in the euro area.

OP’s senior market economist Jari Hännikäinen assessed in his comment that the price development in the euro area in June largely met expectations.

However, he highlights core inflation, which remained at 2.9 percent in June.

“Core inflation has now remained above the central bank’s inflation target for no less than 32 months. This is certainly not viewed in a good way by the ECB, even though the big trend of core inflation still points in the direction of easing price pressures,” Hännikäinen writes.

According to Hännikäinen, the rise in prices in the euro area in June, in line with previous months, was almost entirely based on services.

“Service prices rose at a brisk 4.1 percent annual rate, despite the significant tightening of monetary policy and sluggish economic growth. Service prices contributed as much as 1.8 percentage points to annual inflation,” Hännikäinen writes.

Hänkkäinen according to the assessment, the recent inflation figures did not change the monetary policy outlook of the European Central Bank (ECB). The ECB’s monetary policy-making council started lowering key interest rates in June, but has signaled caution about the next rate cuts.

ECB decision-makers and economists typically monitor core inflation in particular, from which the effect of food and energy, which are sensitive to rapid price changes, has been removed.

The members of the monetary policy-making council have repeatedly said that the council is in a so-called “data-driven” state. It means that the Council does not commit to a certain kind of interest rate at this stage, but monitors the development of inflation data, among other things.

Nordea’s chief analyst Jan von Gerich estimate on Tuesday message service in Xthat core inflation, which has remained at almost three percent, and service inflation, which is over four percent, are not enough for the central bank.

“With these numbers, the ECB will not recalculate yet: better signs of easing price pressures are needed.”

Markets have expected that the central bank will lower key interest rates one or two more times this year. OP’s Hännikäinen is on the same lines.

“We expect the ECB to keep its monetary policy line stable over the summer and be content to monitor the development of price pressures. We anticipate that the central bank will make the next interest rate cut of 0.25 percentage points in September and will lower interest rates this year in December. The expectation of interest rate cuts is strongly conditional on a slowdown in inflation in the euro area, and therefore the monetary policy outlook is still associated with considerable uncertainty,” Hännikäinen writes.