Consumer prices across the Eurozone increased by 2.9% in the 12 months to July, accelerating slightly from the 2.8% annual rate recorded in June, according to Eurostat data released on Wednesday that confirmed the preliminary estimate.
On a monthly basis, headline consumer prices rose 0.2% in July.
An EU-harmonised underlying inflation measure that excludes volatile components such as food and fuel stood at 2.2% year-on-year. Prices on this measure were unchanged from the previous month.
Core Inflation Accelerates on an Annual Basis
The closely watched “core” CPI measure increased 2.5% from a year earlier, compared with 2.4% in June.
Month-on-month, however, core prices were unchanged, slowing from the 0.2% increase recorded in the previous month. The figures therefore point to some persistence in annual underlying inflation even as shorter-term price momentum remained subdued.
ECB Faces Inflation and Energy Uncertainty
The latest inflation figures are likely to form an important part of the European Central Bank’s assessment when policymakers meet again in September.
At its July meeting, the ECB kept interest rates unchanged but warned that “uncertainty remains high” surrounding the economic consequences of the Iran war. Policymakers also cautioned that the full impact of the associated energy shock “has yet to play out.”
The possibility of further increases in energy costs adds another layer of uncertainty to the inflation outlook, particularly as the ECB evaluates whether price pressures are becoming sufficiently persistent to justify additional monetary tightening.
Markets Increase Bets on Further ECB Rate Hikes
Investors have increasingly begun pricing in further ECB interest-rate increases over the coming months, with expectations also supported by evidence that the Eurozone economy remains relatively resilient.
Economic output expanded by 0.4% during the second quarter, accelerating from the growth recorded between January and March.
The combination of firmer annual inflation, resilient economic activity and uncertainty surrounding energy prices could therefore keep pressure on the ECB as officials weigh their next policy decision in September.
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