People shop at the downtown market, Cours Lafayette, in Toulon, on July 27, 2024.
MAGALI COHEN/HANS LUCAS | AFP | GETTY IMAGES
Euro zone headline inflation unexpectedly rose to 2.6% in July even as price growth in the services sector slowed slightly, the European Union's statistics agency said on Wednesday.
In June, inflation was 2.5%, down slightly from 2.6% in May. Economists polled by Reuters had expected the headline figure for July to remain unchanged from June’s reading of 2.5%.
Core inflation, which strips out the more volatile energy, food, alcohol and tobacco prices, was 2.9% in July, versus a Reuters estimate of 2.8%. That compares with a core reading of 2.9% in June.
The widely watched services sector inflation reading came in at 4% in July, down from 4.1% in June.
Harmonized inflation has risen in several major eurozone countries, including leading economies Germany and France. In both countries, inflation was 2.5% in June, rising to 2.6% in July.
The inflation figures come just a day after the release of second-quarter GDP data for the region, which the European Union's statistics office said grew by 0.3% in the three months to the end of June.
This was higher than the 0.2% growth forecast by economists polled by Reuters, and came even as Germany, the euro zone's largest economy, reported a 0.1% contraction.
Investors will now weigh how the new data will affect the European Central Bank’s path to future rate cuts. The ECB held interest rates steady when it met earlier this month after cutting them in June. At the time, it left open the option of another cut in September.
The ECB Governing Council said it would continue to consider inflation dynamics and expectations, as well as the strength of monetary policy transmission, in its decision-making process. It stressed that it was “not committing itself in advance to a particular interest rate path.”
The latest inflation figures are unlikely to have a significant impact on interest rate expectations, Julien Lafarge, chief market strategist at Barclays Private Bank, said on Wednesday.
“While higher-than-expected headline inflation could be seen as a setback for the ECB, we don’t think it necessarily changes the narrative. The reality is that economic growth remains weak – including Q2 GDP data – which should help inflation remain on a downward trend,” he said.
Lafarge indicated that the European Central Bank may cut interest rates in September as well.
