Preliminary figures showed that inflation in the Eurozone accelerated to 2.6% in Jul, from 2.5% in Jun. Core inflation, which excludes volatile components like food and energy, held at 2.9% for a third month, which was a tad higher than expectations of 2.8%, UOB Group economist Lee Sue Ann notes.   

Inflation in the Eurozone accelerates

“Eurozone headline inflation unexpectedly rose to 2.6% y/y in Jul. Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, hit 2.9% y/y in Jul, which was higher than expected. The widely watched services inflation came in at 4.0% y/y for July, easing slightly from the 4.1% reading in Jun.”

“The latest inflation report is one of two crucial monthly inflation readings that will inform ECB officials before the next ECB meeting on 12 Sep. Discussions among policymakers at the ECB are likely to intensify, as it mulls its next steps on the direction of interest rates in the 20-member region.”

“At this juncture, we keep to our view of another two 25bps cuts in 2024, one each in Sep and Dec; but would like to highlight that a Sep rate cut is a close call, and anything but certain.”