Eurozone Inflation Hits 2.9%, ECB Rate Hike in September Now Highly Likely

The eurozone's annual Consumer Price Index (CPI) rose to 2.9% in July, exceeding expectations and making an ECB rate hike in September highly likely.

Core CPI, excluding food and energy prices, unexpectedly increased from 2.4% to 2.5%, while services inflation edged up slightly from 3.2% to 3.3%. This indicates that price pressures are beginning to permeate deeper into the economy.

The primary driver of this inflation rebound is the energy shock, fueled by a surge in oil prices triggered by the Middle East conflict. Brent crude has surged more than 22% from early-month levels.

ECB President Lagarde warned last week that the spillover effects from the energy shock could be stronger than anticipated and stated that the central bank would remain 'highly vigilant' regarding broader price pressures in the coming weeks.