Euro area July inflation affirms flash estimate of 2.1 pct, core rate to average 1.1 pct in 2018

The euro area’s flash estimate of inflation for the month of July, released at the end of last month, had surprised on the upside, accelerating to 2.1 percent year-on-year, and the highest since December 2012. There had also been the likelihood of an upwards revision, although today’s final estimate merely affirmed that flash reading, with minimal alterations to the various components.

Therefore, the rise in inflation in July was partially explained by a rise in energy prices, which rose to 9.5 percent year-on-year, the highest since February 2012. Food inflation remained elevated, down just 0.2 percentage point to 2.5 percent year-on-year, still close to the top of the range of the past five years. The inflation of services and non-energy industrial goods both rose 0.1 percentage point to 1.4 percent and 0.5 percent, respectively, to leave the core rate at 1.1 percent, noted Daiwa Capital Market Research in a report.

The headline consumer price inflation is expected to move gradually lower between now and the early summer of 2019.

“On average, we now forecast average core inflation of 1.1 percent in 2018, 1.3 percent Y/Y in 2019 and 1.5 percent Y/Y in 2020, and headline inflation of 1.7 percent Y/Y this year, and 1.5 percent Y/Y in 2019 and 2020 - an outlook that might leave the case for tighter monetary policy in late 2019 far from watertight”, added Daiwa Capital Market Research.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bullish at 135.131, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -118.528. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex