Euro Zone Inflation Rises to 2.9% in July

Euro zone inflation rose to 2.9% in July from 2.8% in June, according to flash data from Eurostat. This increase was primarily driven by a 10.0% annual surge in energy prices linked to war in Iran, alongside a rise in services inflation to 3.3%. Core inflation, which excludes volatile food and energy costs, also accelerated to 2.5% from 2.4%.

These figures strengthen the case for the European Central Bank to implement another interest rate hike, with a potential decision date of September 10. Financial markets currently price in a high probability of this hike, although economists remain cautious regarding whether energy costs will trigger broader second-round price impacts.

Despite the inflationary pressure, the euro zone economy grew by 0.4% in the second quarter. This growth exceeded expectations and has reduced concerns that further interest rate hikes would trigger a recession.