Eurozone inflation steady at 1.3% in July, core inflation rises

Annual inflation in the eurozone was steady in July, according to a flash estimate released by Eurostat on Monday.

Eurozone inflation was unchanged in July at 1.3%, in line with expectations. However, core inflation, which excludes unprocessed food and energy, was up 1.3% from 1.2% in June, versus consensus expectations of 1.1% and marking the lowest level since August 2013.

Energy inflation grew 2.2% compared with 1.9% in June, with services up 1.5% versus 1.6% and food, alcohol and tobacco stable at 1.4%. Non-energy industrial goods rose 0.5% compared with 0.4% growth in June.

Capital Economics said: "Core inflation remains below the ECB’s 2% target for headline inflation over the medium term. It might rise further in time given the recent health of economic activity. But note that there is still spare capacity in the labour market and no firm evidence that wage growth is picking up from Q1’s subdued 1.3% y/y.

"In all, then, the ECB is unlikely to be convinced that underlying inflation is on a sustained upward trend. While the Bank seems set to taper its asset purchases next year, interest rate hikes are a pretty distant prospect."