Eurozone Inflation Climbs to 2.6% in July, Surpassing Projections

Eurozone Inflation Climbs to 2.6% in July, Surpassing Projections
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TOULON — The European Union’s statistics agency reported on Wednesday that headline inflation in the eurozone unexpectedly increased to 2.6% in July, despite a slight deceleration in the services sector.

In June, inflation stood at 2.5%, a small decrease from May’s figure of 2.6%. Economists surveyed by Reuters had forecast that July’s inflation rate would match June’s 2.5%.

Core inflation, which strips out volatile items like energy, food, alcohol, and tobacco, reached 2.9% in July, slightly above the Reuters estimate of 2.8% and consistent with June’s core inflation rate.

Services inflation, a closely monitored indicator, dropped to 4% in July from 4.1% in June.

Several major eurozone economies, including Germany and France, saw harmonized inflation rise from 2.5% in June to 2.6% in July.

This inflation report follows the release of eurozone second-quarter GDP data, which showed a 0.3% growth for the three months ending in June, according to the European Union’s statistics office. This exceeded the 0.2% growth predicted by economists polled by Reuters, despite Germany, the eurozone’s largest economy, experiencing a 0.1% contraction.

Investors are now considering how this new data might influence the European Central Bank’s (ECB) future interest rate decisions. Earlier this month, the ECB chose to maintain the current rates after a cut in June, with the possibility of another reduction in September still on the table.

The ECB Governing Council emphasized that it would continue to evaluate inflation trends, economic prospects, and the effectiveness of monetary policy transmission in its decisions, clarifying that this does not commit them to a predetermined rate path.

Julien Lafargue, head of market strategy at Barclays Private Bank, commented that the latest inflation data is unlikely to significantly alter the outlook for interest rates.

“While the higher-than-expected inflation could be viewed as a challenge for the ECB, it doesn’t necessarily change the broader narrative. Economic growth remains subdued, as evidenced by the second-quarter GDP figures, which should support a continued downward trend in inflation,” Lafargue explained.

Lafargue suggested that the ECB might still consider further interest rate cuts in September.

Linked media – Connected media
By Ethan Brown Lambert

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