Eurozone Inflation Rises in July

In a surprising turn of events, Eurozone inflation accelerated in July, complicating the European Central Bank's (ECB) plans for a potential rate cut at its upcoming meeting in September. Inflation has remained above the ECB's target of 2 percent for three consecutive years, with no signs of improvement in the underlying data for the third month in a row. This persistent inflationary pressure raises questions about the ECB's monetary policy direction. Energy prices have seen a notable increase, rising 1.3 percent annually, up from just 0.2 percent in June. While overall prices remained unchanged month-on-month, a closer look reveals a 2.6 percent drop in goods prices, contrasted by a 1.2 percent rise in service prices. Analysts suggest that the decline in goods prices could have been more pronounced if not for robust clothing sales in Italy, where summer discounts were less aggressive than in previous years, leading to a significant rise in the country’s annual Consumer Price Index (CPI). The ECB's next monetary policy decision is scheduled for September 12, with President Christine Lagarde indicating that the decision remains "wide open." Market expectations currently suggest an 80 percent probability of a rate cut from 3.75 percent to 3.5 percent. However, economists caution that the current inflation data, particularly in services, will be crucial in determining the ECB's course of action, with six weeks of additional data to be considered before the final decision.