The latest data from the European Union’s statistics agency Eurostat shows that Eurozone inflation continued to ease in July. The consumer price index rose by 5.3% compared to the previous year, which is slightly lower than the 5.5% increase seen in June. This matches the expectations of economists polled by The Wall Street Journal.
However, the core inflation rate, which excludes volatile food and energy prices, remained unchanged at 5.5% in July, the same as the revised rate for June. This poses a challenge to policymakers, particularly the European Central Bank, who signaled last week that they might pause their cycle of interest-rate hikes aimed at curbing rising prices.
According to Andrew Kenningham, Chief Europe Economist at Capital Economics, July’s inflation data will disappoint policymakers because of the unchanged core rate and the high services inflation. Services inflation is expected to decline slowly, which will hinder efforts to reduce overall inflation. On the other hand, goods inflation is expected to decrease more rapidly as global supply problems ease. However, services inflation is likely to remain elevated, preventing the ECB from lowering interest rates until well into next year.
The central bank predicts that inflation will be at 5.4% this year before decelerating to 3.0% in 2024 and 2.2% in the following year.
Overall, while Eurozone inflation has slightly eased, the persistence of the core inflation rate presents a continuing challenge for policymakers looking to address rising prices effectively.