Hitting the target: Inflation in Belgium falls below 2% for first time in two years

Hitting the target: Inflation in Belgium falls below 2% for first time in two years
Credit: Belga / Siska Gremmelprez

Belgium's inflation rate fell to 1.6% last month, down from 2.7% in May, as lower energy prices continued to ease financial pressure on the country's citizens.

The data published by Statbel was based on the European Harmonised Index of Consumer Prices (HICP), which means that Belgium's headline rate is now below the 2% official target set by the European Central Bank (ECB): the first time it has fallen beneath this threshold since July 2021.

Core inflation, which strips out energy and volatile food prices, remained significantly higher than the headline rate at 7.9%. However, it also registered a decline relative to the previous month, after a slight uptick from April to May (8.1% to 8.4%).

Food prices continued to have a significant upward effect on inflation, with both processed (13.0%) and unprocessed (12.4%) food inflation multiple times greater than the headline rate. Conversely, electricity is now 29.2% cheaper compared to this time last year, while natural gas is 65.2% less expensive.

The latest report follows another Statbel study from last month, which found that Belgium's inflation rate fell to 4.15% in June, down from 5.20% in May. However, this rate was calculated using the Consumer Price Index (CPI): a different index from the HICP, which is quantified using a distinct basket of goods and services and is the EU's preferred measure of inflation.

Beyond Belgium's borders

The EU-wide inflation data for June has not yet been released by the EU's statistics office, Eurostat. However, according to early "flash" estimates, Belgium's headline rate is set to remain significantly below that of its neighbours, including France (5.3%), the Netherlands (6.4%), and Germany (6.8%).

In May, Belgium's inflation rate (2.7%) was less than half the eurozone average (6.1%), and the second-lowest in the EU after Luxembourg (2.0%),

High inflation across much of the rest of the eurozone makes it highly unlikely that the ECB will refrain from raising rates at its next meeting, which is scheduled for Thursday next week.

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The ECB has now hiked interest rates eight times over the past year in its efforts to dampen European inflation. At its last meeting in June, the Bank increased its benchmark rate by 25 basis points to 3.5% – its highest level in 22 years.

ECB President Christine Lagarde has previously stated that it is "very likely" that the ECB will hike rates again at its next meeting. "Are we done? Have we finished the journey? No," Lagarde said last month. "We are not at our destination. Do we still have ground to cover? Yes."

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