Eurozone inflation accelerated to 2.9% in July, ending a run of easing price growth, as surging energy costs linked to the Middle East conflict pushed up consumer prices across the currency bloc, according to a flash estimate published by Eurostat on Friday.
The reading was up from 2.8% in June, the first acceleration in two months and a reversal of the downward trend seen since the spring. On a monthly basis, consumer prices in the euro area rose an estimated 0.2% in July.
Energy recorded the sharpest annual increase among the main components, climbing 10% in July after an 8.5% rise in June. Services inflation edged higher to 3.3% from 3.2%, while prices of non-energy industrial goods rose to 0.9% from 0.7%. Food, alcohol and tobacco prices increased 1.2%, slowing from 1.5% in June.
Core inflation, which excludes energy, food, alcohol and tobacco, ticked up to 2.5% from 2.4%, a sign that underlying price pressures are building beyond the energy shock.
Among member states, Lithuania (5.6%) and Bulgaria (4.1%) recorded the highest annual rates, while Estonia (2.0%) and Malta (2.1%) were the lowest. Germany’s inflation also rose more than expected, to 2.8% in July, national data showed.
The pickup comes as oil prices have climbed again amid renewed escalation of the US-Iran conflict, which has disrupted shipping through the Strait of Hormuz and the Red Sea since late February. Analysts say the pass-through of higher energy costs to consumer prices is still working its way through the economy.
The data strengthens the case for another rate increase from the European Central Bank, which held its deposit rate at 2.25% at its latest policy meeting and warned that the inflationary impact of the energy shock had yet to fully materialize. Analysts at Morningstar said the upside surprise makes a September rate hike more likely.
“We believe that inflationary pressures are currently mainly due to energy prices, while indirect effects have remained limited so far,” said Ulrike Kastens, an economist at DWS. “Given the volatility of energy markets, the ECB must remain vigilant. We still expect the ECB to raise its deposit rate to 2.5% in September.”
A September move would take the deposit rate to 2.5%, still below the peak of the previous tightening cycle, while the bank balances above-target inflation against a subdued growth outlook. Markets will now watch oil prices and the ECB’s next meeting for signs of how far the tightening will go.
Sources: Anadolu Agency, The Corner, Eurostat (European Commission)
Author: Finance Desk
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