Inflation reared its head again in Europe, driven by service prices: in the Eurozone it rose to 2.6% in July from 2.5% in June. The situation in the European Union was not very different, with prices rising to 2.8% compared to 2.6% in June. The lowest annual growth was recorded by Eurostat in Finland (0.5%), Lithuania (0.8%) and Denmark (1.0%). The most significant contributor to the increases was the services sector (+1.82%), followed by food, alcohol and tobacco (+0.45%), non-energy industrial goods (+0.19%) and energy (+0.12%). The political and economic pressures are such that the ECB is unlikely to be able to shy away from giving a big cut in rates: Sweden has shown the way by cutting them earlier than expected (by 0.25 percentage points, to 3.5%) and could do so again two or three more times before the end of the year if the inflation outlook remains valid. ‘In light of an increasingly favourable inflation outlook and weak economic activity, the executive board of the central bank assesses that the key policy rate can be cut somewhat faster than assessed in June,’ the Riksbank says in its monetary policy update.
