Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Eurozone inflation hits fresh record, while economy grows robustly

Eurozone inflation hits fresh record, while economy grows robustly

The data will add pressure on the ECB to hike rates by half a percentage point in September.

The eurozone economy showed Friday it's more robust than expected despite ever-raging inflation — raising pressure on the European Central Bank to hike rates more substantially in September.

Eurostat data showed that the eurozone economy grew by 0.7 percent on the quarter, accelerating from 0.5 percent in the first three months of the year and defying expectations of a significant slowdown.

The strong performance was driven by rapid growth in Spain, which grew by 1.1 percent, and Italy, which expanded by 1 percent. In both cases, the service sector — boosted by tourism — was especially healthy.

On the other end of the spectrum was Latvia, where GDP dropped by 1.4 percent, and Lithuania, down 0.4 percent on the quarter.

Output stagnated in the eurozone’s largest economy, Germany, while it expanded by 0.5 percent in France, the eurozone’s second largest economy.

While the overall growth picture is less gloomy than expected, the eurozone is still beset with scorching inflation.

Headline inflation accelerated to 8.9 percent in July, up from 8.6 percent in June. Analyst expectations had seen inflation remaining at or just slightly above the June rate. The primary driver remains energy prices, which were up 39.7 percent on the year, followed by food, alcohol and tobacco, up 9.8 percent.

Of special concern to policymakers is core inflation, which excludes those volatile components and is seen as a gauge for medium-term price developments. It accelerated further from 3.7 percent to 4 percent, or twice the ECB’s price stability target.

"The inflation problem is getting bigger and bigger," said Commerzbank economist Christoph Weil.


September tightening


With inflation turning out persistently higher than expected month after month, the European Central Bank last week decided to raise interest rates by 50 basis points (0.5 percent), more than it had previously flagged. The central bank said it'll lift rates further in September, but it left open whether it would issue another 50-basis-point move or a more conservative 25-basis-point step.

That decision will be determined by incoming data, its policymakers said.

Despite Friday's improved growth figures, the ECB is keenly aware the latest round of data points to a significant slowdown in economic activity ahead, thanks in part to the effects of the ongoing Ukraine war and energy-price shock.

"What we see in the real economy, certainly it is not terribly encouraging," ECB Governing Council member Ignazio Visco told POLITICO earlier this week. "Everything was dismal."

The key flash composite Purchasing Managers Index, for example, showed last week that eurozone business activity contracted in July as both output and new orders fell for the first time since early 2021. Business expectations also point to more pain ahead, having fallen to fresh lows.

Souring growth prospects have already prompted investors to bet the ECB will stop raising rates much earlier than they expected only a few months ago. Weaker growth should help bring down prices over the medium-term and limit the risk of inflation becoming more embedded in the real economy through wage growth.

"With a recession looming and inflation reaching new highs, the question is how the ECB will respond to an economy which is already cooling down," ING economist Bert Colijn said. "Don’t rule out the ECB front-loading hikes. So 50 basis points in September is definitely still on the table."

In an interview with the Estonian paper Postimees released earlier Friday, ECB Vice President Luis de Guindos underscored that inflation worries will trump growth concerns when the central bank sets it policies.

"The main factor that will guide our decisions will be the evolution of inflation," he said.

As Oxford Economics economist Nicola Nobile sees it, Friday's data clearly point in one direction.

"With inflation not showing any signs of cooling off in the short term and with the economic outlook not yet derailing, we expect another 50 [basis point] increase in September from the ECB," she said.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
×