Eurozone Inflation Rises on Fuel Prices, But Labour Market Remains Soft

The eurozone inflation rate rose modestly in July, driven primarily by sharp increases in fuel prices. The average pump price across the eurozone reached its highest level since the Middle East conflict began.

This increase was not as significant as it could have been, however, due to the fact that July started with a US-Iran memorandum of understanding still in place. If oil prices remain at their current levels, inflation is expected to be even higher in August.

The core inflation rate increased from 2.4% to 2.5% in July, but this increase was relatively small. Despite this, it does indicate that both goods and services inflation are trending slightly higher.

The labour market remains a key area of focus for the ECB, which has noted a small tick-up in its expectations of negotiated wage developments for next year. This suggests that higher inflation may begin to impact wage growth.