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Wednesday's figures did not seem to derail market expectations
for an interest rate cut by the European Central Bank in
September, but they were likely to strengthen concerns about a
difficult last mile in the ECB's efforts to bring down
inflation.
Price growth in the 20 countries that share the euro accelerated
to 2.6% in July from 2.5% in June according to Eurostat's flash
estimate.
A key measure of underlying growth in prices -- which excludes
energy, food, alcohol and tobacco -- failed to show the expected
decline and came in unchanged at 2.9%.
"It's a difficult print for the ECB," said Fabio Balboni, an
economist at HSBC. "Disinflation on the goods side is coming to
an end and services inflation remains high."
Still, Balboni stuck to his call for ECB cuts in September and
December, as did investors in euro zone money markets, on
expectations that inflation would eventually ease.
"I still expect a second rate cut to come in September," said
Kyle Chapman, a foreign exchange markets analyst at Ballinger
Group. "I don’t think it matters too much if we get the odd data
point that’s slightly stronger than expected."
Euro zone inflation has fallen a long way since briefly hitting
double digits in late 2022, when it had been boosted in large
part by a brisker-than-expected reopening of the economy after
the COVID-19 pandemic and more expensive fuel in the wake of
Russia's invasion of Ukraine.
But that progress has stalled in recent months as prices in the
services sector got a boost from higher salaries.
In a small, positive sign for the ECB, services' price growth
eased to 4.0% from 4.1% in June.
The ECB has made clear it would not be swayed by individual data
points and will focus instead on the broader trend for
inflation, which it expects to bounce around current levels this
year before pulling back towards its 2% target in 2025.
The central bank started cutting rates last month, paused in
July and is widely expected to slowly dial back over the next
1-1/2 years some of the steepest hikes it has made in its
25-year history.
(Reporting By Francesco CanepaEditing by Toby Chopra and Gareth
Jones)
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