People shopping at the Cour Lafayette downtown market in Toulon on July 27, 2024.
Magali Cohen / Hans Lucas | Afp |
Inflation in the euro zone rose unexpectedly to 2.6% in July, the European Union's statistics office said on Wednesday., although price growth in the services sector slowed slightly.
Inflation in June was 2.5 percent, down slightly from 2.6 percent in May. Economists polled by Reuters had expected inflation in July to remain unchanged from June's 2.5 percent.
Core inflation, which excludes the more volatile energy, food, alcohol and tobacco prices, was 2.9 percent in July, while Reuters had expected 2.8 percent. In June, core inflation was still at 2.9 percent.
The much-watched inflation rate in the services sector was 4% in July, down from 4.1% in June.
Harmonized inflation rose slightly in several key euro area countries, including the leading economies of Germany and France. In both countries, inflation was 2.5 percent in June and rose to 2.6 percent in July.
The inflation figures come just a day after the release of data on the zone's second-quarter gross domestic product, which grew 0.3 percent in the three months to the end of June, according to the European Union's statistics office.
This was above the 0.2% growth expected by economists polled by Reuters and came as the euro zone's largest economy, Germany, reported a 0.1% contraction.
Investors will now be weighing up how the new data will affect the European Central Bank's stance on possible future rate cuts. The ECB left rates unchanged at its meeting earlier this month after cutting them in June, leaving open the option of a further cut in September.
The Governing Council said it would continue to take into account the dynamics and outlook of inflation as well as the strength of monetary policy transmission in its decisions. It stressed that this was “not a pre-emptive commitment to a particular interest rate path”.
Julien Lafargue, chief market strategist at Barclays Private Bank, said on Wednesday that the latest inflation figures were unlikely to have a significant impact on the interest rate outlook.
“While the higher-than-expected inflation rate could be seen as a setback for the ECB, we do not believe that this necessarily changes the situation. In fact, economic growth – including the second quarter GDP figures – remains subdued, which should help inflation to remain on a downward trend,” he said.
Therefore, the ECB could still lower the key interest rate in September, said Lafargue.
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