Eurostat’s preliminary estimates showed that the eurozone consumer price index rose 2.6% in July, up from 2.5% in June and ahead of economists’ expectations for a further 2.5% rise. Core inflation, which measures prices excluding energy and food costs, remained stable at 2.9% for the third consecutive month. Economists had expected core inflation to slow slightly to 2.8%.
“Eurozone inflation is a surprising rise for the ECB, but it’s not that bad on the inside,” Tomasz Wieradek, chief European economist at T. Rowe Price, said in an email. “The surprise in core CPI inflation was due to core goods inflation, not an increase in services inflation,” Wierardek said, explaining that the cause was likely due to a temporary spike in transportation costs. did.
In preliminary inflation figures for July, services (4.0%, 4.1% in June) are expected to contribute the most, followed by food, alcohol and tobacco (2.3%, 2.4% in June), and energy (1.3%). . (up from 0.2% in June) and non-energy industrial products (0.8%), Eurostat said.
Country-specific figures showed inflation rising unexpectedly in Germany and Italy. Prices rose 2.6% year-on-year in Europe’s largest economy, according to provisional data released by the Federal Statistical Office on Tuesday, July 30th. In Italy, the consumer price index rose 0.8% to 1.3% this month. France’s inflation rate accelerated to 2.3% from 2.2% in June, while Spain’s inflation rate fell to 2.8%, the lowest in five months.
ECB still expected to cut interest rates in September
July’s inflation readings will be crucial before the European Central Bank decides on interest rates on September 12th. The ECB left interest rates unchanged at its July 18 meeting. Christine Largarde emphasized that the path of interest rates will be shaped by the ECB’s three policy criteria.
1) Inflation outlook
2) Indicators of underlying inflation
3) Strength of monetary policy spillover power
Despite Wednesday’s rise in inflation, investors continue to expect a 0.5 point rate cut in September.
“Today’s services inflation data shows a continuation of the recent disinflationary trend in services HICP inflation,” Wierardek said. “Therefore, the ECB will likely examine the strong HICP inflation record today. From the ECB’s perspective, the data released today is consistent with the quarterly pace of rate cuts. It is likely that the central bank will continue to lower its key policy interest rates in February and December.
Another key factor in determining the ECB’s rate-cutting trajectory will be Wednesday’s Federal Reserve meeting, as policymakers look for signs that U.S. peers are ready to begin monetary easing. .
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