July Eurozone Inflation Unchanged At 1.3%, Core Rate Edges Higher

Tammy Harvey
August 1, 2017

While the report confirms ECB President Mario Draghi's prediction that inflation would remain near June levels in the coming months, it also reinforces his assessment that, despite the region's booming economy, there isn't yet a self-sustained trend.

Eurostat said second-quarter GDP was up 2.1% compared with a year earlier, the fastest growth since 2011 and in line with forecasts by economists in a Reuters poll.

Unemployment in the eurozone fell to 9.1 percent in June, its lowest figure since February 2009, according to official data from Eurostat, the statistical office of the bloc.

Growth in the eurozone accelerated slightly in the second quarter of 2017 as Europe's tentative economic recovery remained on track, official European Union data showed on Tuesday (Aug 1). "There does seem to be self-sustaining momentum", said Knightley. Confidence indicators were well above historical averages.

The International Monetary Fund has hiked outlooks for China and the euro zone, while trimming those for the United States and Britain.

Now the question is when to taper.

The committee was divided at its last meeting, with three members wanting to increase borrowing costs to curb inflation while the other five preferred to keep them on hold to shore up growth and employment.

The annual rate of inflation rose by 1.3% in July, according to a preliminary reading from Eurostat. Perhaps more significantly, the core figure, without volatile energy and unprocessed food prices, is seen falling.

Among the clearest signs of a rebound has been the euro's pick-up to around $1.17, from $1.05 at the start of the year.

The euro EUR= has rallied more than 12 percent year to date and is holding at two-and-a-half year peaks.

"The political risk factor has been taken out", said Vasileios Gkionakis, co-head of strategy research at UniCredit. Despite the still below target inflation, the general improvement in economic conditions and slightly less dovish comments from Mario Draghi means we think there is a reasonable chance the European Central Bank could announce a winding down of its QE programme when it next meets in September.

The jobless rate has fallen steadily since peaking in April 2013, after the Eurozone sovereign debt crisis threatened to lead to the break-up of the single currency.

More significant may prove to be average wage growth, however.

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