Euro Area: Harmonized inflation falls to over one-year low in July

Euro Area Inflation July 2023

Euro Area: Harmonized inflation falls to over one-year low in July

Harmonized inflation dropped to 5.3% in July, easing slightly from June’s 5.5% and moving closer to the ECB’s 2.0% target. July’s figure represented the lowest inflation rate since January 2022, with the deceleration due to a larger decrease in energy prices.

In addition, the trend pointed down, with annual average harmonized inflation coming in at 8.0% in July (June: 8.3%).

Looking ahead, our panelists expect inflation to ease to below 3% by Q1 2024 on a tougher base effect and the ECB’s recent rate hikes. However, an upside risk is posed by sticky core inflation, which was above the headline rate in July for the first time since 2021. Core inflation is being stoked by services inflation, which rose 0.2 percentage points to a multi-decade high of 5.6% in July amid a surge in tourism.

Analysts at Goldman Sachs said:

“We look for further declines in headline inflation as both energy and food inflation cool, and we look for Euro area headline inflation to be 3.0% yoy in Q4, with a pick-up due to base effects to 3.5% yoy in December 2023.”

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