Inflation edges up as ECB nears end of rate-cut cycle

This week, the central bank heads from the U.S., Japan, Korea, the UK and the EU gathered in their annual Central Banking Forum at the Penha Longa hotel in Sintra.

Inflation in Portugal accelerated slightly in June to 2.4%, up from 2.3% in May, according to flash estimates from the National Statistics Institute (INE).

Core inflation, which strips out volatile items like unprocessed food and energy, also rose to 2.4%, from 2.2% the month before.

Prices for unprocessed foods continued to climb, with annual inflation hitting 4.7%, up from 4%. Meanwhile, energy prices contracted further, with a year-on-year drop of 1.3%.

Across the eurozone, inflation rose to 2.0% in June, aligning with the European Central Bank’s (ECB) medium-term target.

Eurostat estimates Portugal’s harmonized inflation rate at 2.1% for June,down from 3.1% a year earlier, but up from May’s 1.7%.

While still above the eurozone average, the figure reflects broader signs of price stabilization across the bloc.

ECB Forum in Sintra

This symbolic milestone was celebrated by ECB President Christine Lagarde at the annual Central Banking Forum in Sintra, where she noted, “We are at 2%, our latest result, our medium-term target, and our expectation for the years ahead.”

Despite the achievement, Lagarde warned that policy decisions would remain data-dependent, signaling no guarantee of further rate cuts.

After eight consecutive reductions since June 2024, the ECB is expected to pause in July, with uncertainty surrounding future moves.

She also said that the euro’s recent appreciation against the dollar doesn’t just reflect market conditions but also the strength of the euro zone’s economy.

Lagarde noted that “investors are looking at options” in a climate characterised by uncertainty and unpredictability and that there was evidence that the euro was benefiting from that.

FED Powell’s opinion

In contrast, U.S. Federal Reserve Chair Jerome Powell struck a more cautious tone, saying the Fed was “waiting a bit longer” before moving on rates.

Powell, under political pressure from President Donald Trump to ease policy, emphasized the Fed’s independence, a stance publicly supported by Lagarde during the panel discussion.

He earned applause from his colleagues and the audience for saying the Fed was focused “100%” on its inflation and jobs target when asked whether Trump’s personal attacks make his job harder.

Powell reiterated the U.S. central bank plans to “wait and learn more” about the impact of tariffs on inflation before lowering interest rates, again setting aside Trump’s demands for immediate and deep rate cuts.

Leadership changes

Meanwhile, the ECB faces upcoming leadership transitions, including the May 2025 departure of Vice-President Luis de Guindos and Chief Economist Philip Lane in 2026.

In Portugal, speculation swirls around who will lead the Bank of Portugal after Governor Mário Centeno’s term ends in mid-July.

Centeno has expressed willingness to continue, though economists Ricardo Reis and Álvaro Santos Pereira are also seen as strong contenders.