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Euro zone inflation ticks up in July, bolstering rate hike case

Created at 31 Jul · 9:07 AM1 source↑ Market-relevant
IN SHORT

Euro zone inflation rose to 2.9% in July from 2.8% in June, driven by higher oil prices. Underlying inflation also accelerated, strengthening the case for another European Central Bank interest rate hike despite economic growth exceeding expectations.

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Key Numbers

2.9%Euro zone inflation rate in July
2.8%Euro zone inflation rate in June
2.5%Underlying inflation rate in July
2.4%Underlying inflation rate in June
3.3%Services inflation rate in July
0.4%Euro zone economic growth in Q2

Who's Involved

European Central Bank
Signaling a likely interest rate hike
Eurostat
Released July inflation data
Euro zone inflation ticks up in July, bolstering rate hike case

↳ Why This Matters

The rise in Eurozone inflation, particularly in underlying measures, increases the probability of further interest rate hikes by the European Central Bank, which could impact economic growth and borrowing costs across the bloc.

Key facts

  • Euro zone inflation increased to 2.9% in July from 2.8% in June.
  • Underlying inflation rose to 2.5% from 2.4%, with services inflation at 3.3%.
  • The euro zone economy grew 0.4% in the second quarter, exceeding forecasts.
  • The European Central Bank is strongly signaling another rate hike is likely.
  • Financial markets are pricing in more than two additional rate hikes by October and April.

    • Euro zone inflation edged up to 2.9% in July, driven by a surge in oil prices, reinforcing the European Central Bank's case for another interest rate hike. The increase, in line with expectations, saw underlying inflation also accelerate to 2.5% as services prices rose. Despite concerns about high energy costs, the euro zone economy expanded by 0.4% in the second quarter, defying forecasts of a slowdown. This economic resilience, coupled with the uptick in inflation, strengthens the likelihood of further monetary tightening by the ECB. Financial markets are pricing in multiple rate hikes, though economists remain more cautious, anticipating only one more move due to moderating food inflation and a relatively soft labor market.

    Frequently asked questions

    Euro zone inflation ticked up to 2.9% in July from 2.8% in June.

    An oil price surge, partly induced by tensions related to Iran, is driving the increase in inflation.

    Underlying inflation, which excludes volatile food and energy prices, accelerated to 2.5% from 2.4%.

    The Euro zone economy expanded by 0.4% in the second quarter, exceeding expectations and defying forecasts of a recession.

    What Happens Next

    01ECB policymakers will receive another inflation print before their next meeting.
    02Markets are pricing in rate hikes through October and April.

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    Cadence
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    How It Developed

    Euro zone inflation rose to 2.9% in July from 2.8% in June.
    Underlying inflation, excluding food and energy, accelerated to 2.5% from 2.4%.
    Services inflation increased to 3.3%.
    The euro zone economy expanded by 0.4% in the second quarter.
    Financial markets anticipate more than two rate hikes by October and April.
    Economists predict only one more rate hike due to soft labor market and moderating food and non-energy industrial goods inflation.

    Sources

    T1
    Euro zone inflation ticks up in July, bolstering rate hike caseReuters

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