### Eurozone Inflation Rises Unexpectedly in July, Services Inflation Remains High
Eurozone inflation experienced an unforeseen rise in July, with persistent high costs in the service sector fueling uncertainty about potential interest rate cuts in September. According to preliminary data from Eurostat released on Wednesday, the harmonized index of consumer prices (HICP) increased by 2.6 percent year-on-year in July, surpassing the 2.5 percent growth recorded in June.
Economists had anticipated that the headline inflation rate would remain steady at June's 2.5 percent. Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, held steady at 2.9 percent, contrary to forecasts predicting a slowdown to 2.8 percent.
On a monthly basis, consumer prices were unchanged in July.
All components of the HICP saw year-over-year increases. Services costs rose the most, up by 4.0 percent, although this represented a slight decrease from June's 4.1 percent increase. Food, alcohol, and tobacco prices went up by 2.3 percent, while energy prices saw a 1.3 percent rise. Prices for non-energy industrial goods increased by a modest 0.8 percent.
Earlier this month, the European Central Bank (ECB) decided to keep its key interest rates unchanged after a rate cut in the previous session, the first in five years. The ECB had hinted at the possibility of another rate cut in September.
Franziska Palmas, an economist at Capital Economics, noted that the minor reduction in services inflation in July makes a September rate cut more likely but not certain. "Until services inflation declines more significantly, the ECB is likely to continue easing policy only gradually," Palmas stated.
Peter Vanden Houte, an economist at ING, suggested that while the overall downtrend in inflation remains, the current figures make the prospect of a September rate cut a close call.
Among the Eurozone's four largest economies, harmonized inflation rates in both Germany and France rose to 2.6 percent in July, up from 2.5 percent in June. Italy saw a more significant increase in inflation, climbing to 1.7 percent from 0.9 percent. Conversely, Spain's inflation rate eased to 2.9 percent from 3.6 percent.
