The rate of inflation in the euro area accelerated to 2.6 percent in July from 2.5 percent in June, the statistics office Eurostat said today in its flash estimate. This is a surprising result, as analysts had expected inflation to moderate. The estimate does not include data for the entire European Union, so it does not include data for the Czech Republic.
Belgium leads
Belgium had the highest inflation in the eurozone in July at 5.5 percent, while inflation was above 3 percent in Estonia (3.5 percent), the Netherlands (3.5 percent) and Croatia (3.4 percent). On the other hand, Eurostat recorded the lowest inflation in Finland (0.6 per cent) and Latvia (0.8 per cent).
On average, economists in the FactSet survey expected inflation to slow down. They estimated it would fall to 2.4 percent.
Eurostat expects services to have contributed the most to headline annual inflation in July. Inflation for them reached four per cent, compared with 4.1 per cent in June. The food, alcohol and tobacco category is next with an inflation rate of 2.3 per cent compared to 2.4 per cent in June. Inflation for energy then stood at 1.3 per cent compared to 0.2 per cent in June.
ECB
Inflation in the euro area thus remains above the European Central Bank’s (ECB) target of 2 per cent. The ECB started raising interest rates in July last year in order to bring inflation under control, but stopped raising interest rates in October last year. Since then, it has held its key interest rate at 4.50 per cent until earlier this year in June when the Governing Council decided to cut interest rates by a quarter of a percentage point, as expected. This brought the base rate to 4.25 per cent.
Some ECB officials considered the June rate cut a hasty move. They justified it on the grounds that progress in bringing inflation down to the two per cent target had stalled. ECB President Christine Lagarde then expressed caution about further interest rate cuts.
Source: ÄŒTK
