Inflation in the euro zone unexpectedly rose to 2.6% in July, according to data released by the European Union’s statistics agency on Wednesday. This increase contrasts with the 2.5% inflation recorded in June and defied economists’ expectations, who had forecast no change from the previous month’s rate.

Core inflation, which excludes more volatile items like energy, food, alcohol, and tobacco, reached 2.9% in July, surpassing the 2.8% estimate from Reuters. This figure remained consistent with June’s core inflation rate.

Although price growth in the services sector eased slightly to 4% in July from 4.1% in June, harmonized inflation rates climbed in several key euro zone countries. Both Germany and France, which had reported inflation rates of 2.5% in June, saw an increase to 2.6% in July.

These inflation figures come on the heels of the euro zone’s second-quarter GDP report, which showed a 0.3% growth in the three months ending in June. This exceeded the 0.2% growth anticipated by economists, even as Germany, the euro zone’s largest economy, reported a slight contraction of 0.1%.

Investors are now closely analyzing how these inflation and growth figures might influence the European Central Bank’s (ECB) approach to future interest rate adjustments. The ECB maintained rates at its last meeting earlier this month, following a reduction in June. At that time, the ECB left open the possibility of another rate cut in September.

The ECB Governing Council emphasized it would continue to assess inflation dynamics and the effectiveness of monetary policy in its decision-making process, stating it was “not pre-committing to a particular rate path.”

(Adapted from Barrons.com)

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