Core / Services Remain Sticky In Flash July Inflation Print

Eurozone July flash headline HICP printed 5.3% Y/Y and -0.1% M/M (vs 5.5% Y/Y and -0.1% M/M prior), roughly in line with expectations coming into this month's round of national/Euro area price data.

• But core HICP was 5.5%, unchanged from June, and a touch above expectations of 5.4%. The persistence in core inflation was led by services which accelerated to 5.6% M/M (vs. 5.4% prior).
• Many of the dynamics indicated in our inflation preview appear to have played out in the flash release: Energy as expected continued to be a major drag, printing at -6.1% Y/Y (vs -5.6% Y/Y prior), while food disinflation continued at 10.8% Y/Y (vs 11.6% prior).
• The Y/Y services and core figures were driven in part by base effects from the German travel ticket and the upward pressure provided by package holidays in the summer months. The latter two services components will likely still be a factor in August, but will be less of a factor from September. Even so, sequential M/M core and services inflation looks to have remained fairly sticky in July (were 0.4% M/M and 0.5% respectively in June on an SA basis).
• As previously noted, the main points at the country-level are the stronger-than-expected CPI prints for Italy and Spain (though in contrast to Spain's, Italy Y/Y HICP was softer than expected due to methodological factors).
• With largely in-line readings on the basis of national-level prints already suggesting the Eurozone-wide persistence in core inflation, market pricing for a ECB deposit rate hike in September was little changed at 8.8bps (35% chance of a 25bp hike), with terminal rate expectations at 3.93% for December 2023 (18bp cumulative hikes remaining in the cycle).

Source: Eurostat, MNI