Eurozone Services Slowdown: What This Disinflation Signal Means for Your Investments and Business Growth

Eurozone Services Slowdown: What This Disinflation Signal Means for Your Investments and Business Growth

You ever wonder how inflation can play hide-and-seek with economists and central bankers alike? Just when we thought July’s HICP inflation would drop below the ECB’s 2% target—to 1.9%, no less—it stubbornly held its ground instead. It’s like inflation decided to throw a little curveball. What’s really catching my eye, though, is the surprising uptick in food inflation, now sitting at an 18-month high of 3.3%. That figure might seem tame compared to the 15.5% peak during the energy crisis, but believe me, it’s enough to rattle households and inflation expectations alike. Meanwhile, services inflation is dropping faster than anyone hoped—quite the wildcard scenario for Christine Lagarde’s ECB to digest. Goods inflation? It’s quietly creeping up too, nudging the numbers in unexpected ways. So, what does this mean for the ECB’s next moves, and can we expect inflation to finally take a breath and slide below target? Let’s dive into these surprising twists and turns—because in the world of economics, the only certainty is uncertainty. LEARN MORE

Headline HICP inflation surprised modestly to the upside in July, holding steady at the ECB’s 2% target, against our and consensus expectations for a move lower to 1.9%, ABN AMRO’s economist Bill Diviney reports.

Food inflation picking up

“Core inflation was in line with expectations at 2.3%. The drivers of the surprise in the headline figure were less disinflation in energy than had been signalled by wholesale energy prices, and a renewed pickup in food inflation, which rose to an 18 month high of 3.3%. While well off the peak of 15.5% during the energy crisis, food inflation bears close watching as research suggests that households tend to be more sensitive to food prices, making it an important driver of inflation expectations.”

“On the positive side, services inflation continued its downward trajectory, falling to a 40 month low of 3.1%. The decline in services inflation is proceeding somewhat faster than our expectations, but it is consistent with the normalisation we have seen in wage growth and will be welcomed by the ECB. In contrast, goods inflation surprised to the upside, rising to a 16 month high of 0.8%, although this remains a benign figure. If anything, we expect goods inflation to face renewed downward pressures over the coming months, as weaker demand from the US on the back of tariffs, as well as from more intense competition from Chinese goods – something the ECB recently published a blog post about.”

“Overall, the ECB’s Governing Council will be comfortable with the July report. While food inflation is an emerging concern, it remains to be seen if the recent pickup will be sustained, with little sign of strong upward pressure from global agricultural commodity prices. Meanwhile, services inflation is continuing to fall back to more normal levels. We continue to expect inflation to undershoot the ECB’s 2% target over the coming months, driven by falling oil prices, the stronger euro, and a further normalisation in core inflation.”

Post Comment

WIN $500 OF SHOPPING!

    This will close in 0 seconds