The
Eurozone’s
consumer
price
index
increased
to
2.6%
in
July, according
to
Eurostat’s
flash
estimate,
up
from
2.5%
in
June
and
above
economists’
expectations
of
a
further
2.5%
reading.
Core
inflation,
which
shows
prices
without
energy
and
food
costs,
was
stable
at
2.9%
for
the
third
month
in
a
row.
Economists
had
forecast
a
slight
deceleration
to
2.8%.
“Euro
Area
inflation
surprises
the
ECB
to
the
upside,
but
the
news
isn’t
as
bad
under
the
bonnet”,
T.
Rowe
Price
Chief
European
Economist
Tomasz
Wieladek
commented
in
an
email.
“The
surprise
in
core
CPI
inflation
was
not
due
to
a
rise
in
services
inflation,
but
core
goods
inflation,”
which
in
turn
likely
stems
from
a
temporary
spike
in
shipping
costs,
Wieladek
explained.
In
July’re
preliminary
inflation
figure,
the
greatest
contribution
is
expected
to
come
from
services
(4.0%,
compared
with
4.1%
in
June),
followed
by
food,
alcohol
and
tobacco
(2.3%,
compared
with
2.4%
in
June),
energy
(1.3%,
up
from
0.2%
in
June)
and
non-energy
industrial
goods
(0.8%),
according
to
Eurostat.
Country-level
data
showed
inflation
unexpectedly
ticking
up
in
Germany
and
Italy.
In
Europe’s
largest
economy,
prices
rose
2.6%
Y/y,
according
to
preliminary
data
from
the
federal
statistics
office
released
on
Tuesday,
July
30.
In
Italy,
the
consumer
price
index
increased
by
1.3%
this
month,
up
from
0.8%.
French
inflation
accelerated
to
2.3%
from
2.2%
in
June
while
in
Spain,
the
rate
slipped
to
a
five-month
low
of
2.8%.
ECB
Still
Expected
to
Cut
Interest
Rates
in
September
July’s
inflation
readings
are
crucial
ahead
of
the
European
Central
Bank’s
decision
on
interest
rates
on
September
12.
The
ECB
left
rates
unchanged
in
its
July
18
meeting.
President
Christine
Largarde
stressed
that
the
rate
path
will
be
shaped
by
three
ECB
policy
criteria:
1)
Inflation
outlook
2)
Measures
of
underlying
inflation
3)
The
strength
of
monetary
policy
transmission
Despite
Wednesday’s
inflation
uptick,
investors
continue
to
expect
a
quarter-point
reduction
in
September.
“The
services
inflation
data
today
show
that
the
recent
disinflation
trend
in
services
HICP
inflation
continues,”
Wieladek
said.
“The
ECB
will
therefore
probably
look
through
the
strong
HICP
inflation
print
today.
From
an
ECB
perspective,
the
data
released
today
is
consistent
with
a
quarterly
cutting
pace.
The
ECB
will
therefore
likely
continue
to
cut
its
main
policy
rates
in
September
and
December.”
Another
key
factor
for
the
ECB’s
rate
cutting
trajectory
will
be
Wednesday’s
Federal
Reserve
meeting,
as
policymakers
look
for
any
indication
that
their
US
peers
are
ready
to
begin
easing
their
monetary
policy.
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