Eurozone inflation up in July as energy costs soar

Brussels – Bad news for the eurozone: inflation has already stopped falling and is rising again. In July, it will stand at 2.9 per cent, up from June’s level (2.8 per cent), according to preliminary figures released today (31 July) by Eurostat. The European Statistical Office will publish the final figures on 19 August, and only then will we have a clear picture of the situation. Still, in the meantime, the indications seem to confirm the fears expressed by the President of the European Central Bank, Christine Lagarde, namely that the inflationary impact of the energy shock has yet to be fully felt.

The situation really does seem to be getting worse. The fall in inflation in June is immediately being called into question, and the resumption of hostilities in the Persian Gulf risks making matters even worse. Meanwhile, however, there has been a significant increase in the energy component of the reference basket. The ‘energy’ component is forecast to reach 10 per cent in July (compared with 8.5 per cent in June). There have also been increases, albeit not as marked, in non-energy industrial goods (0.9 per cent, compared with 0.7 per cent in June) and services (3.3 per cent, compared with 3.2 per cent in June). Food, alcoholic drinks, and tobacco bucked the trend (1.2 per cent, compared with 1.5 per cent in June).

As a result of these trends, every single country in the eurozone is now above the 2 per cent reference threshold. Among the three main eurozone economies, there have been marked increases in Germany (from 2.4 per cent to 2.8 per cent) and France (from 2 per cent to 2.4 per cent). Inflation in Spain has also risen (from 3.6 per cent to 3.8 per cent), while Italy bucked the trend (falling from 3 per cent to 2.9 per cent). Of note is the slowdown in Bulgaria (from 5.2 per cent to 4.1 per cent), a country that joined the eurozone in January and saw its inflation soar within a matter of months.

The ECB will meet again on 10 September. The Governing Council will have access to all the final data for July and the preliminary figures for August when making its decisions. Should this information follow the trend set by the preliminary July figures, a further rise in interest rates in September appears likely.