July flash: +2.4% y/y

MNI survey median: +2.3% y/y
MNI survey range: +2.2% to +2.5% y/y

June final: +2.4% y/y

FRANKFURT (MNI) – Eurozone consumer price inflation unexpectedly
held firm at +2.4% for the third consecutive month in July, Eurostat
reported on Tuesday. A majority of analysts polled had forecast a modest
slowdown in the annual rate.

A detailed breakdown of the headline figure, which suggests a
further monthly decline of around half a percent, is scheduled to be
published on August 16.

Seasonal factors were the main driver behind German inflation
developments this month, the country’s statistics office reported late
last week, boosting holiday package tour and motor fuel prices and
offsetting cheaper seasonal foodstuffs, clothing and food.

Price pressures in the private sector continued to ease in July, a
PMI report showed, with input price inflation falling further (51.1) to
its lowest level since late 2009.

“Companies also cut prices to the greatest extent since early-2010
to help boost ailing sales, which should help alleviate inflationary
pressures but may hit profits,” Markit Chief Economist Chris Williamson
noted in a press release.

A European Commission survey showed that manufacturers and
construction firms were looking to cut prices further in the coming
months, while expectations in retailing and services, though recovering
on the month, remained below the long-run average.

The proportion of consumers expecting prices to trend upward over
the next year also rose, climbing above the series average after dipping
below it in June, the Commission added.

Leeway for companies to hike prices is likely to remain limited in
the near term, however. The latest unemployment figures show 11.2% of
the labour market out of work, which will undoubtedly keep households’
discretionary spending at a minimum.

In a recent interview, European Central Bank President Mario Draghi
said that inflation could fall faster than initially expected, and that,
should deflation risks emerge, “we will act”.

“We are very open and have no taboos,” Draghi said. “We decided to
lower interest rates below 1% because we expected that inflation would
be close to or below 2% at the start of 2013. Now it is probable that it
will come down by the end of 2012.”

— Frankfurt bureau, +49-69-720 142; email: frankfurt@marketnews.com —

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