DWS: Unexpected price increase for consumer goods
Ulrike Kastens, Senior Analyst Macro Research at DWS Group, comments on the European inflation figures.
In July, the inflation rate in the eurozone failed to meet optimistic market expectations once again. The inflation and core inflation rates remained unchanged in July at 2.0% and 2.3%, respectively. Meanwhile, the rate of price increases for services fell from 3.3% in June to 3.1% in July. This development was likely supported by lower wage increases. By contrast, prices for consumer goods rose unexpectedly. Although the euro's appreciation should have had a gradual impact, prices rose from 0.5% in June to 0.8% in July on yearly basis. Food prices rose even more sharply, which is certainly still a bone of contention for consumers. They increased by 3.3% in July, primarily due to unprocessed food. Prices climbed from 4.6% in June to 5.4% in July.
Overall, current inflation appears to be more persistent than anticipated. Lower wage increases, as indicated by the ECB's wage tracker, should provide further relief in the next months, particularly in labor-intensive service sectors. The appreciation of the euro, which has gained 5% in trade-weighted terms since the beginning of the year, should also have a positive impact in the coming months. We continue to expect temporarily low inflation rates of just under 2.0% in the second half of 2025, but do not anticipate inflation undershooting the target in the longer term.
