Eurozone inflation increased slightly in July, with consumer prices rising 2.9% year-on-year, according to data released by Eurostat on Wednesday. The figure confirmed the preliminary estimate and was slightly higher than the 2.8% annual increase recorded in June.
On a monthly basis, the headline Consumer Price Index rose by 0.2% in July.
Underlying Inflation Remains Moderate
An EU-harmonized measure of underlying inflation, which excludes volatile components such as food and energy, stood at 2.2% year-on-year.
On a monthly basis, the measure was unchanged at 0.0%, suggesting that underlying price pressures remained relatively stable during July.
Meanwhile, the closely watched core CPI rate increased to 2.5% annually, compared with 2.4% in June.
Month-on-month, core inflation was flat at 0.0%, slowing from the 0.2% increase recorded in the previous month.
ECB Likely to Focus on July Inflation Data
The latest Eurozone inflation figures are expected to play an important role in the European Central Bank’s next monetary policy meeting in September.
At its July meeting, the ECB kept interest rates unchanged. However, policymakers warned that economic uncertainty remained elevated due to the Iran conflict and its potential impact on energy prices.
The central bank also noted that the full consequences of the resulting energy shock had not yet been reflected across the Eurozone economy.
Markets Expect Further ECB Rate Hikes
Investors are increasingly pricing in the possibility of additional ECB interest rate hikes in the coming months.
Expectations have been supported not only by persistent inflation but also by signs that economic activity across the Eurozone remains relatively resilient.
The Eurozone economy expanded by 0.4% in the second quarter, marking an acceleration compared with growth recorded during the January-to-March period.
Stronger economic growth could give the ECB more room to maintain a tighter monetary policy stance if inflation continues to remain above its preferred levels.
Eurozone Inflation Outlook Remains in Focus
The combination of rising headline inflation, steady core price pressures and resilient economic growth is likely to keep investors focused on upcoming ECB decisions.
Markets will now closely monitor new inflation, growth and energy-price data ahead of the September policy meeting for further clues about the future direction of Eurozone interest rates.
