Eurozone inflation hits 2.9% in July boosting rate-hike

Inflation across the eurozone accelerated in July, complicating the European Central Bank's path toward its 2% target and strengthening the case for further interest rate increases. Data released by Eurostat on Friday, July 31, showed the annual Harmonized Index of Consumer Prices rose to 2.9%, up from 2.8% in June and matching market expectations. The increase was driven primarily by a surge in energy costs, linked to renewed conflict in the Middle East, while underlying price pressures also intensified.

Core inflation, which excludes volatile food and energy prices, accelerated to 2.5% from 2.4% the previous month. Services inflation, a key indicator of domestic demand, rose to 3.3%. Energy prices recorded the highest annual jump at 10% year-on-year. The data indicates inflationary pressures are broadening beyond temporary energy shocks, with services inflation reflecting robust wage growth and high labor costs. Economists noted that the disinflation process appears to be stalling.

The inflation report followed stronger-than-expected economic growth figures for the second quarter, which showed the eurozone economy expanded by 0.4%, twice the forecast rate. This resilience has...