Eurozone inflation ticks up in July

Inflation hit 0.2% in July, marking its highest level since the end of last year and up from 0.1% in June. Economists had pencilled in a 0.1% increase.

Prices were led higher by food, alcohol and tobacco, which increased 1.4%, while services prices rose 1.2%. Energy prices dropped 6.6% following a 6.4% decline the month before.

Core inflation – which strips out energy – was steady at 0.9%.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: “Inflation in the euro area continues to edge higher, albeit at a slow pace. Higher food inflation was one of the key drivers of the rise in July, consistent with data in France and Germany indicating that fresh food inflation surged.

“Core inflation was unchanged at 0.9%, which looks odd as services inflation rose slightly to 1.2%, while non-energy industrial goods inflation was unchanged at 0.4%. We suspect the inconsistency is due to rounding. Overall, we continue to think that EZ inflation will gradually increase to 1.2%-to-1.4% in the next six-to-12 months. It will be quicker than the ECB and the market expects, but the 2% target will remain elusive. As a result, an extension of QE is the path of least resistance for the central bank, which we think will be announced in September.”