Eurozone inflation unexpectedly falls to 2.5 pct

[July 29, 2011]  BRUSSELS (AP) -- Inflation in the 17 countries that use the euro unexpectedly fell in July, official figures showed Friday, raising speculation that the European Central Bank may not need to raise interest rates as quickly as markets have been predicting.

Eurostat, the EU's statistics office, said consumer prices in the eurozone rose by 2.5 percent in the year to July.

That's still above the ECB's target of keeping inflation just below 2 percent, but down on market expectations for an unchanged reading of 2.7 percent.

Despite the debt crisis that has engulfed the eurozone and signs of waning economic activity, the markets have been pricing in another interest rate increase from the ECB in September.

The bank has already raised its main interest rate a quarter of a percentage point on two occasions this year to 1.5 percent from the record low of 1 percent.

Eurostat did not offer any explanation why inflation fell. Further details will emerge in the middle of August when it publishes a more comprehensive report.

The euro was steady after the report, possibly because investors are more focused on developments in the U.S. debate to raise the debt ceiling.

[Associated Press]

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