Eurozone inflation continues up and down in July, uncertainty over ECB

The inflation The eurozone continued its up-and-down movement in July, with a slight increase after a slight decline in June, maintaining uncertainty about a possible rate cut. ECB in September.

Inflation in the 20 countries that share the single currency reached 2.6% on an annual basis, after 2.5% in June and 2.6% in May, driven by a new increase in energy prices, according to figures published on Wednesday by Eurostat.

Consumer price growth was already at 2.6% in February and has shown only minor upward and downward fluctuations since then. It is struggling to come close to the 2% target set by the European Central Bank (ECB).

Factset analysts expected a slight decline in July. inflation to 2.4%.

Core inflation – adjusted for volatile energy and food prices, the most closely watched by financial markets and the ECB – held steady at 2.9%, unchanged from May, according to the European statistics office.

The analysts’ consensus also anticipated a slight decline, to 2.8%.

The slight increase in inflation in July is explained by an acceleration in the increase in energy prices to 1.3% annually, compared to 0.2% in June.

Inflation in services prices, on the other hand, fell to 4%, while that of food (including alcohol and tobacco) fell to 2.3% in July, compared with 2.4% in the previous month.

The decline in services is considered good news by experts, as it indicates an absence of wage tensions. It is an indicator observed by the ECB which wants to put the brakes on any increase in wages in order to definitively contain inflation.

Industrial goods prices rose slightly again, up 0.8% in July.

In general, the increase in consumer prices in the Euro zone It has shrunk to less than a quarter from a record 10.6% annual increase in October 2022, when energy prices soared amid the war in Ukraine.

The decline in inflation should continue

This trend has allowed the ECB to begin to slightly relax its monetary policy in an attempt to revive economic growth.

Eurozone gross domestic product was higher than expected in April-June, rising 0.3% from the previous quarter, according to Eurostat, but concerns are high for the rest of the year.

To combat inflation, the ECB had raised borrowing costs at an unprecedented pace since July 2022.

On June 6, it reduced its interest ratesoffering some relief to ease credit strains for individuals and businesses that are holding back investment and consumption.

The deposit rate, which was at 4%, its highest point reached last September, was reduced to 3.75%.

Some analysts expect the ECB to resume rate cuts at the next meeting of its governing council scheduled for September 12, after the summer break.

But on Wednesday they said that uncertainty remains. “While falling services inflation makes a rate cut in September more likely than a status quo, it is not a sure thing,” said Franziska Palmas of Capital Economics.

“With underlying price pressures still high, this will be a difficult decision and will depend on data released in the coming weeks, including the inflation rate for August,” he explained.

The latest figures “do not give the ECB “the certainty that the battle against inflation has been won,” says Peter Vanden Houte, an economist at ING bank.