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Euro Zone Inflation Eases to Up 1.8% in July

Reuters
Thursday, 16 Aug 2007 | 5:07 AM ET

Annual inflation in the 13-nation euro zone currency area eased to 1.8% in July to stay well within the European Central Bank's target area even though economists expect it to raise interest rates next month.

The European Union's statistical office Eurostat said the 1.8% annual inflation reading for July was unchanged from its first estimate. It was also in line with forecasts by economists. Annual inflation was 1.9% in June.

Eurostat said prices dropped 0.2% month-on-month in July, also in ine with market expectations.

The biggest fall in prices was in the communications sector, while prices in lothing and recreation and culture barely rose.

The education sector, hotels and restaurants, and alcohol and tobacco showed he largest gains in prices.

The ECB wants to keep annual consumer price rises just below 2%. Their growth has remained at that target since last September, while ECB interest rates have moved gradually higher.

A Reuters poll on Tuesday showed that 63 of 65 economists still see euro zone interest rates rising to 4.25% in September despite news this week that economic growth in the currency area unexpectedly decelerated in the second quarter.

Eurostat said that without volatile unprocessed food and energy prices -- a measure the ECB calls core inflation and watches closely -- prices fell 0.3% month-on-month in July but gained 1.9% on an annual basis.

Economists had forecast that core inflation in July would ease 0.3%, month-on-month, and show a 1.9% rise, year-on-year.

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