Eurozone inflation was unchanged in July as a further decline of energy prices negated the impact of more expensive industrial goods and services, leaving the European Central Bank with more work to do to push up prices. The European Union's statistics office Eurostat said on Friday that consumer prices in the 19 countries sharing the euro rose by 0.2 percent year-on-year in July, as in June.
The flash estimate also matched market expectations, although Thursday reports of a mere 0.1 percent reading in Germany and the return of deflation in Spain in July had suggested the euro zone figure could have been even weaker. Excluding energy and unprocessed food - what the European Central Bank calls core inflation - prices were up 0.9 percent from 0.8 percent in June. The market expectation was for no change.
Teunis Brosens, economist at ING, said that the question was whether this marked a trend or was the sort of one-off seen in previous months, such as May. "It's too soon to declare a real strengthening of core inflation," he said. Conversely, with core inflation higher than forecast, energy deflation must have been stronger than expected, with the delayed impact of autumn price declines feeding through into longer-term gas contract and also falling oil prices this month.
This could lead to even lower overall inflation in the coming months. Energy prices were 5.6 percent lower year-on-year, a steeper decline than in June. Unprocessed food increased by 1.3 percent in July, down from 1.9 percent a month earlier. Inflation for services and industrial goods accelerated, albeit the latter to just 0.5 percent.
Eurostat's flash estimate for the month does not include month-on-month calculations. The euro zone ended four months of deflation in April, but inflation is still far below the European Central Bank's target of just under 2 percent. The ECB has interest rates close to zero and this year began a money-printing quantitative easing (QE) scheme, buying government bonds and other assets to pump around 1 trillion euros ($1.1 trillion) into the economy so as to boost growth and prices.
A slump in commodity prices over the past month has pushed back expectations of when the ECB will start normalising its ultra-loose monetary policy by a year to 2019. "If inflation dips lower or even fails to pick up in the near term, the ECB could seriously consider taking further stimulative action such as front-loading its QE," said Howard Archer of IHS Global Insight. Eurostat also reported on Friday that euro zone unemployment was 11.1 percent for the third consecutive month in June, with the lowest rate of 4.7 percent in Germany.
The highest, of 25.6 percent, was in Greece according to the latest available April data. The overall number of people unemployed in the euro area increased by 31,000 compared with May. The increase in Italy was 55,000. Of the other 15 euro zone countries reporting, unemployment only rose in Lithuania, by 5,000, in Belgium and Finland, each by 2,000, and by 1,000 in France, Portugal and Cyprus.
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