Euro zone inflation rose to 2.9 per cent in July, bolstering the case for the European Central Bank (ECB) to raise interest rates again in September to contain the price pressures unleashed by the war in the Middle East.
Friday’s flash estimate, which was in line with economists’ forecasts in a Reuters poll, was up from 2.8 per cent in June, reflecting the renewed rise in fuel and natural gas prices.
It marked the fifth consecutive month that price growth in the 21-country bloc has exceeded the ECB’s medium-term target of 2 per cent. Inflation rose across France, Germany and Spain and overshot the ECB’s 2 per cent target in every country bar Estonia.
The figures follow data released on Thursday showing the bloc’s economy has so far proved relatively resilient in the face of the energy shock, with GDP beating expectations to grow 0.4 per cent in the second quarter.
RM Block
With little sign of a resolution to the conflict, ECB president Christine Lagarde has warned that the energy shock could intensify and its effects on other prices and wages could prove stronger than expected, driving up broader inflation.
The ECB left interest rates unchanged at 2.25 per cent last week, following June’s quarter-point rise, but signalled the door was open to a fresh increase in September, with Lagarde saying policymakers would be “very attentive in the next few weeks” to signs of broader price pressures.
[ Inflation holds steady in July as energy prices fellOpens in new window ]
Kamil Kovar, head of Eurozone forecasting at Moody’s Analytics, said that given July’s developments in the Middle East, Friday’s inflation figures would “put the ECB firmly on a path to hike in September”.
Neil Birrell, chief investment officer at Premier Miton, said it would need “a significant change of events and in the outlook” now to deter rate setters from a September rise.
Friday’s data showed stronger inflation was driven by energy prices, which rose 10 per cent from a year earlier, up from 8.5 per cent in June.
What size does your pension actually need to be for a comfortable retirement?
Services inflation – a gauge of underlying price pressures in the economy that has remained well above the ECB’s 2 per cent target for more than three years – also rose to 3.3 per cent, from 3.2 per cent in June.
Core inflation, which excludes volatile food and energy prices, unexpectedly rose from 2.4 per cent to 2.5 per cent.
Bert Colijn, chief economist at ING, said there was “plenty of scope” for inflation to rise further in the coming months, with August’s reading set to be “significantly higher if oil prices remain around their current levels” and some early evidence emerging of wage pressures picking up.
The price of Brent crude dipped below its pre-war level of $72.48 (€63.10) a barrel at the end of June but has since surged to about $89 a barrel.
One mitigating factor so far has been food inflation – a key factor shaping household expectations for future price growth – which eased to 1.2 per cent in July, continuing a decline since the start of the year.
The euro was little changed following the latest inflation number, down 0.1 per cent against the dollar at $1.152.
After the ECB decision, traders continued to bet on a further one or two quarter-point interest rate rises from the central bank coming before the end of the year, according to levels implied by swaps contracts, with a roughly 85 per cent chance that the first increase comes in September. – Copyright The Financial Times Limited 2026
