Eurozone inflation rises unexpectedly to 2.6%

Eurozone prices increased marginally faster than anticipated in July, a development that might cause the European Central Bank (ECB) to reconsider its plans for further rate reductions.

Inflation within the single currency bloc increased to an annual rate of 2.6% in the year leading up to July, a rise from 2.5% in June, according to a flash estimate from Eurostat, the EU's statistical office.

It was also higher than the 2.4% expected by economists, and above the ECB’s 2% target.

Core inflation remained steady at 2.9% for a third consecutive month. Services inflation eased marginally to 4% and food inflation also eased slightly. Energy prices were up 1.3% year on year, and helped to drive the rise.

"The rise in headline CPI (is) the third such reading in the past six-months. The final stretch back down to 2% remains a difficult hurdle to overcome, and today’s report will likely create jitters for those expecting a September rate cut that is currently being priced at a 68% chance," said Scope Markets analyst Joshua Mahony.

Ricardo Amaro, lead economist at Oxford Economics said the data "provided ammunition to the hawks within the ECB governing council".

"This contrasts with signs of deterioration in growth momentum from leading indicators, which had boosted rate cut calls. We continue to think the ECB will decide for a cut in September, but we acknowledge that it's not a done deal yet."

Reporting by Frank Prenesti for Sharecast.com