The eurozone’s inflation rate surprisingly rose in July, official data revealed, despite price pressures in the service sector easing. The latest flash estimates from Eurostat reveal that the eurozone’s inflation hit 2.6 percent in July 2024, up from 2.5 percent in June.
The eurozone’s service sector inflation declined to 4 percent from 4.1 percent in June while food, alcohol and tobacco prices rose 2.3 percent, compared with 2.4 percent in June. However, energy prices rose 1.3 percent from a 0.2 percent rise in June. Meanwhile, non-energy industrial goods prices rose 0.8 percent, up from 0.7 percent in June.
Rate cut bets
The eurozone inflation data did not impact market expectations for an interest rate cut by the European Central Bank (ECB) in September. However, they did raise concerns about the ECB’s efforts to bring down inflation to target.
The service sector’s inflation numbers remain high, making it more challenging for the ECB to rein in inflation. Despite the rise, analysts and investors still expected the central bank to cut rates both in September and December on expectations that inflation would eventually ease.
Eurozone inflation has significantly declined since hitting double digits in late 2022 in the wake of the COVID-19 pandemic and the Russia-Ukraine war. However, progress has faltered in the last few months as higher salaries boosted service sector prices.
Read: Bank of Japan surprises with rate hike for second time since 2007, trims bond buying
ECB’s view
The ECB reiterated its stance of looking at the broader economic landscape rather than individual economic data reports, noting that it expects eurozone inflation to remain around current levels before falling to the 2 percent target in 2025.
Last month, the ECB started cutting interest rates and it is widely expected to slowly ease policy back in the next 1.5 years from some of the steepest hikes it has made in its 25-year history.
Notably, the flash estimates reveal that inflation eased in eight of the 20 countries in the area.
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