Eurozone inflation ticks upwards to 2.6% as anticipated ECB rate cut approaches 

The European Central Bank (ECB). (Photo by Daniel ROLAND / AFP) (Photo by DANIEL ROLAND/AFP via Getty Images)

Eurozone inflation ticked up slightly in July to 2.6% annually, up from 2.5% in June, new figures from Eurostat reveal, with the increase matching preliminary data from the EU statistics agency and exceeding initial economist estimates.

Irish inflation, as measured by the Harmonised Index of Consumer Prices (HICP), remained unchanged compared to the previous month at 1.5%, with Ireland having the sixth lowest inflation rate out of the 20-country bloc.

The lowest annual rates were registered in Finland at 0.5%, Latvia at 0.8% and Denmark 1%, while the highest annual rates were recorded in Romania and Belgium at 5.8% and 5.4% respectively.

Compared with June 2024, annual inflation fell in nine Member States, remained stable in four and rose in 14, Eurostat said.

Core inflation, which excludes volatile goods such as food and energy, remained steady in July at 2.9%, highlighting underlying price pressures which are lingering well above the European Central Bank's target of 2%.

In July, the highest contribution to the Eurozone's annual inflation rate came from services, which was up by 1.82 percentage points, followed by food, alcohol and tobacco which climbed 0.45 percentage points. 

Services inflation, which accounts for almost 45% of the HICP, stood at 4%, down slightly from 4.1% in June but maintaining the highest inflation rate among consumer items. 

On the other end, non-energy industrial goods recorded the lowest rate of inflation at just 0.7% in July. 

ECB rate cut

The latest uptick in Eurozone inflation further clouds expectations for swift rate cuts by the ECB, with wage growth across the bloc's largest economy complicating matters further.

On Tuesday, Germany's Bundesbank warned that the country's pay growth was not abating and will likely keep inflation high in another worrying signal for the ECB and its price gain target of 2%. 

Collectively agreed earnings increased by 4.2% in the spring, the German central bank said, noting that union demands remain high between 7% and 19%.

The Bundesbank report and Eurostat's latest inflation data come two days before the release of crucial Eurozone pay data which will help ECB policymakers decide whether further interest-rate cuts are justified after their first move in June.

Markets are pricing in at least two more rate reductions this year.

Meanwhile, Ireland's consumer price index (CPI) as measured by the Central Statistics Office (CSO) remained unchanged in July at 2.2%, as price growth continued to slow across the Irish economy.

The HICP, Eurostat's measure of inflation does not include mortgage repayments in its calculations, leading to a disparity between Ireland's CPI and HICP figures.