People shop at the Coeur Lafayette Market in downtown Toulon on July 27, 2024.
Magali Cohen/Hans Lucas | AFP | Getty Images
Headline inflation in the euro zone unexpectedly rose to 2.6 percent in July, despite a slight slowdown in price growth in the services sector, the European Union’s statistics office said on Wednesday.
Inflation fell slightly to 2.5 percent in June from 2.6 percent in May. Economists polled by Reuters had expected the headline figure for July to be unchanged from 2.5 percent in June.
Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose to 2.9 percent in July, beating a Reuters forecast of 2.8 percent. The figure compared with 2.9 percent in June.
Inflation in the closely watched services sector fell to 4% in July from 4.1% in June.
Harmonized inflation rates rose slightly in several major eurozone countries, including the major economies Germany and France, which both saw inflation rates rise to 2.6% in July from 2.5% in June.
The inflation figure came just a day after the release of the region’s second-quarter gross domestic product (GDP) data, in which the European Union’s statistics office said inflation rose 0.3% in the three months to the end of June.
That beat the 0.2 percent increase expected by economists polled by Reuters and was in line with Germany, the euro zone’s largest economy, which reported a 0.1 percent contraction.
Investors will be considering how the latest data might affect the trajectory of future interest-rate cuts from the European Central Bank, which left rates on hold at its meeting earlier this month after cutting them in June, at the time leaving open the possibility of another cut in September.
The ECB’s Governing Council said it would continue to take into account inflation developments and outlook, as well as the strength of the monetary policy transmission, in its policy decisions. It stressed that the Governing Council “does not commit in advance to a particular path for interest rates.”
Julien Lafargue, chief market strategist at Barclays Private Bank, said on Wednesday that the latest inflation data was unlikely to have a major impact on the interest rate outlook.
“Higher than expected headline inflation would be seen as a setback for the ECB, but we don’t think it will necessarily change our view. Indeed, economic growth remains weak, including in the second quarter GDP figures, which should help maintain the downward trend in inflation,” he said.
Lafargue said that this could lead the ECB to cut interest rates in September.
