The flash estimate for HICP inflation showed an unexpected but marginal rise in headline inflation in July, to 2.6% from 2.5% in June. Core inflation held steady at 2.9%, against our expectations for a fall to 2.7%, ABN AMRO senior economist Bill Diviney notes.

Inflation disappoints in July, but silver linings below the surface

“Looking at the main drivers, energy came in stronger, rising 1.3% y/y (June: 0.2%), with the recent rise in petrol prices and higher administrative gas tariffs in France offset to a lesser degree than expected by the continued falls in wholesale energy prices (as indicated by the energy PPI). Services inflation fell marginally to 4% from 4.1%; we had expected a bigger drop to 3.8%.”

“News reports suggest that hoteliers and airlines are having to lower prices with travelers clearly becoming more price-sensitive. This kind of pushback bodes well for the medium-term inflation outlook. Food inflation also edged further lower, to a new 2 & 1/2 year low of 2.3. Goods inflation was broadly steady at a subdued 0.8% y/y, having hovered in a 0.7-0.9% range for the past 5 months.”