Eurozone inflation drops to 1 percent in July, raising chances of interest rate cuts
The year-on-year inflation rate in the eurozone fell to 1 percent in July, three tenths less than in June and its lowest level since November 2016, according to the revised data published today by the Eurostat statistics office.
This new decline in inflation brings the possibility of the European Central Bank taking action to stimulate the economy in September, after its president, Mario Draghi, warned in July that the issuer would not accept “permanently low levels of inflation” and that it was prepared to act to increase the rate.
The ECB’s objective is to keep inflation at levels close to but below 2 percent.
In the European Union as a whole, the rate also fell two tenths compared to June, down to 1.4 percent, according to Eurostat. In both cases inflation is at much lower levels than in July 2018, when the rate was 2.2 percent in the area of the single currency as well as in the whole of the twenty-eight member states.
The largest contribution to the increase in prices in the euro area came from the services sector (0.53 percentage points), followed by food prices, alcohol and tobacco (0.37 points), non-energy industrial goods (0.08 points) and energy (0.05 points).
The underlying inflation in the eurozone – which excludes energy prices and fresh food, the most volatile components – fell by two tenths in July, to 1.1 percent. This is the key indicator that the ECB looks at when it comes to decide on possible further interest rate cuts.
Last week Eurostat confirmed further bad news for EU economies, when it revealed the Gross Domestic Product (GDP) of the eurozone only grew by 0.2 percent in the second quarter of the year, one tenth less than in the first.