Eurozone inflation falling weakens central bank hawkish stance, this round of rate hikes may be nearing its end.

The hawks in the European Central Bank might argue that the overall and core inflation's decline in June is not as encouraging as it may seem at first glance, and the sub-item data in the report may serve as the basis for their argument. They may point out that the upward trend in non-energy industrial goods and services inflation in May has not completely reversed yet, and the momentum in services inflation is increasing. However, inflation is lower than expected, and if oil prices continue to drop, it means that inflation peaked in May. We believe that the reasons for another rate hike have weakened. Although recent speeches by President Lagarde suggest she still supports a rate hike in September, this is likely to mark the end of this brief tightening cycle. In June, the euro area HICP inflation rate slowed from 3.2% in May to 2.8%, lower than the median estimate of 3.0% by economists surveyed by Bloomberg News, and even lower than our prediction of 2.9%. The contribution of service inflation to overall inflation decreased by 0.1 percentage points from the previous month, while the contribution of direct energy costs decreased by 0.2 percentage points.