July: -0.5% m/m, +2.4% y/y
June: -0.1% m/m, +2.4% y/y
May: -0.1% m/m, +2.4% y/y
April: +0.5% m/m, +2.6% y/y
March: +1.3% m/m, +2.7% y/y
February: +0.5% m/m, +2.7% y/y
—

FRANKFURT (MNI) – Eurozone consumer price inflation held firm at
+2.4% on the year in July, as expected for the third consecutive month,
while core rates picked up speed, Eurostat reported on Thursday.

In monthly terms, cheaper clothes and foodstuffs brought overall
prices down 0.5%, in line with forecasts and the third slide since May.

With its components adding 0.37 point to the headline rate, energy
remained the main driver, prices for which rose 0.9% and 6.1% on the
month and year, respectively.

Since climbing above $100 in early July, Brent crude prices have
continued trending upwards, hitting three-month highs on supply fears
and rising speculation that Israel could attack Iranian nuclear
facilities. Oil is currently trading at $116.27.

Food, alcohol and tobacco prices were 0.4% lower m/m, as cheaper
vegetables and fruit weighed, bringing the annual rate down to +2.9%.

Corn prices surged to an all-time high earlier this month, as the
U.S. suffers through its worse drought in 50 years. With sugar prices
also up dramatically, the Food and Agriculture Organisation’s Food Price
Index jumped 6% last month.

Excluding the above components, the core rate rose to +1.7% on the
year, its highest level since April 2009.

The European Central Bank’s preferred measure of core inflation,
which factors out the effects of both energy and unprocessed food
prices, inched up to +1.9% y/y, a three-month high.

With unemployment likely to reach a new record high in the coming
months, and leading indicators already suggesting that Eurozone GDP
could contract again in the third quarter after -0.2% in 2Q, price
pressures should remain limited in the near term.

Supporting this assessment, the latest PMI report showed input cost
inflation in the private sector falling to a 32-month low in July, while
output prices fell at their sharpest rate in almost two and a half
years.

A European Commission also pointed to easing pipeline price
pressures, with manufacturers and construction companies reducing
further their selling price expectations last month.

Nevertheless, the proportion of consumers expecting prices to trend
upwards in the year jumped back above the long-term average, amid upward
revisions to the selling price outlook in both the services and retail
sectors, the Commission added.

Despite the recent climb in oil prices, inflation in the Eurozone
is not currently a concern for monetary policy, ECB Governing Council
member Luc Coene said in an interview published earlier this week.

“Inflation, which is due uniquely to the rise in petrol prices, is
not a problem. It will pass through the economy,” Coene said. “What is
problematic are second-round inflation effects. But, up until now, in
what we have seen in the past, there have not been any second-round
effects.”

“Thus, the fact that petrol prices are rising presently in the
short term, which is surprising anyway since global demand isn’t rising,
does not immediately have an effect on inflation expectations or on our
monetary policy.”

— Frankfurt bureau: +49 69 720 142; e-mail: frankfurt@mni-news.com —

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