Euro zone inflation unexpectedly edges up in July

FRANKFURT (Reuters) – Euro zone inflation unexpectedly edged up in July, data showed on Wednesday, although a widely watched gauge of price growth in the services sector eased.

Wednesday’s figures alone may not be enough to derail a widely expected European Central Bank interest rate cut in September, but they were likely to strengthen concerns about a difficult last mile in the ECB’s efforts to bring down inflation.

Price growth in the 20 countries that share the euro accelerated to 2.6% in July from 2.5% in June according to Eurostat’s flash estimate.

A key measure of underlying growth in prices — which excludes energy, food, alcohol and tobacco — failed to show the expected decline and came in unchanged at 2.9%.

Euro zone inflation has fallen a long way since briefly hitting double digits in late 2022, when it had been boosted in large part by a brisker-than-expected reopening of the economy after the COVID-19 pandemic and more expensive fuel in the wake of Russia’s invasion of Ukraine.

But that progress has stalled in recent months as prices in the services sector got a boost from higher salaries.

In a positive sign for the ECB, services’ price growth eased to 4.0% from 4.1% in June.

The ECB has made clear it would not be swayed by individual data points and will focus instead on the broader trend for inflation, which it expects to bounce around current levels this year before pulling back towards its 2% target in 2025.

The central bank has been widely expected to cut interest rates in September and again in December, undoing part of the steepest streaks of hikes in its 25-year history.

(Reporting By Francesco Canepa; Editing by Toby Chopra)

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