Euro zone headline inflation came in below expectations in annual terms in July, but economists still expect the European Central Bank to raise interest rates twice more this year.
European Union statistics office Eurostat said on Thursday that consumer prices rose 2.4 percent year-on-year, slowing from 2.5 percent in June. The reading also fell below its initial estimate of 2.5 percent, which had shaped market forecasts.
Price rises in fuels for transport, gas, heating oil, district heating and oils and fats were the main drivers behind the overall increase, Eurostat said.
"This is just a marginal fall in inflation and it's not going to do anything to the European Central Bank," said Holger Schmieding, economist at Bank of America. "They are set to raise rates in October and December."
The ECB wants to keep headline inflation just below 2 percent and has been raising interest rates since last December to stem pressure from record credit growth and oil prices. The last rise, to 3.0 percent, came on August 3.
Month-on-month, consumer prices fell 0.1 percent in July, pulled down by declines in clothes, shoes, vegetables, plants and flowers. Energy prices were the only ones to increase in July against June, rising 1.4 percent for a year-on-year gain of 9.5 percent - a marked slowdown from the 11.0 percent annual rise in June and 12.9 percent in May.
Inflation without volatile energy and food prices, the measure the ECB calls core inflation, inched up to 1.6 percent year-on-year from 1.5 percent in June. "The fact that core inflation increased ... will reinforce the ECB's concerns that underlying inflationary pressures are creeping up," said Howard Archer, economist at Global Insight.
While the monthly production slump was mainly a result of falling output of durable consumer goods, capital goods and non-durable consumer products, the annual rise was fuelled by a jump in intermediate and capital goods production. Economists said the output data suggested Eurostat's estimate of second-quarter gross domestic product growth for the euro zone of 0.9 percent quarter-on-quarter would not be revised down.