July flash: +2.5% y/y

MNI survey median: +2.7% y/y
MNI survey range: +2.6% to +3.0% y/y

June final: +2.7% y/y

FRANKFURT (MNI) – Annual inflation in the Eurozone unexpectedly
slowed to a five-month low of 2.5% in July, Eurostat reported on Friday.
This suggests that consumer prices fell 0.6% on the month.

The majority of analysts polled late last week had expected an HICP
rate of 2.7%, in line with June’s figure.

A detailed breakdown will not be published before August 17. Data
from various German states showed strong gains in energy and package
holiday prices, which offset cheaper food, lifting German inflation to a
three-month high. The Eurozone estimate indicates that there was marked
slowdown in other countries where economic growth is more subdued.

Indeed, recent indicators suggest that pipeline price pressures may
be waning.

Companies polled for the July PMI reported output prices in the
private sector rising at the slowest pace in five months, while input
price inflation hit its lowest level since July 2010.

Selling price expectations were also revised downward, with a
smaller proportion of companies in industry, services and retail sectors
seeing prices rising in the near term, according to the European
Commission. Conversely, the proportion of consumers expecting prices to
trend higher recovered modestly after three months of declines.

Nevertheless, European Central Bank Governing Council member Yves
Mersch warned Thursday that “new sources of inflationary pressure” could
emerge.

“The combination of dynamic economic growth, accompanied by
accelerated inflation in emerging markets bears the risk that imported
inflation will come to play a larger role in domestic price levels in
the industrialized world,” Mersch said in Tokyo.

“The recent increases in prices of certain agricultural products
and raw materials may therefore be more persistent than currently
assumed,” he added. “The lagged effect of food prices could still add a
layer of headline inflation.”

— Frankfurt bureau, +49-69-720 142; email: frankfurt@marketnews.com —

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