Eurozone inflation was unchanged for the third month in a row and the same as July last year at a steady 2.4% despite the threat of recession and companies cutting jobs and production.
While inflation remained the same, the eurozone economy shrank by 0.2% in the second quarter of 2012.
“Overall, there are no inflation threats for the euro region given the economic environment,” said Christian Melzer, an economist at Dekabank in Frankfurt. “The economy will continue to shrink in the third and fourth quarters, weighing on prices. We expect another interest rate cut in September.”
The wider 27-nation European Union inflation rate continued at 2.5%.
The lowest annual rates were in Sweden (0.9%), Greece (1.2%) and Latvia (1.9%), with the highest in Hungary (6.0%), Cyprus (4.5%) and Estonia (4.2%).
Inflation rises for 20 EU nations
Compared with July 2012, annual inflation rose in 20 nations, remained stable in two and fell in four.
The lowest 12-month averages were in Sweden (1.0%), Ireland and Greece (both 1.8%), and the highest in Hungary (5.1%), Estonia (4.5%) and Slovakia (4.1%).
Transport (4.8%), alcohol and tobacco (4.5%) and housing (4.1%) sjoqwed the highest inflation rates in July, while the lowest were for communications (-3.1%), recreation & culture (0.8%) and education (1.0%).
The European Central Bank’s quarterly survey of professional forecasters predicts eurozone inflation may average 2.3% this year before falling to 1.7% in 2013. The central bank is targeting an inflation level of just below 2%.
Rescue package for Spain
Meanwhile, the The European Central Bank is holding behind-closed-doors talks with with the International Monetary Fund about a rescue package worth €300 billion for Spain.
The package would open the door for the ECB to buy Spanish bonds to lower Madrid’s borrowing costs under the recently announced bond-buying plan.
The ECB wants IMF involvement to make sure Spain complies with tough conditions to cut spending and reform the economy.
Greece wants a third bail out
Greece is also likely to need another bail out to meet budget conditions, the country’s representative on the IMF’s board has said.
“Greece will require additional financing, which may take the form either of official sector involvement or of additional loans, hopefully on more-favorable terms,” said Thanos Catsambas, an IMF alternate executive director.
“Official Sector Involvement” is restructuring debts held by Greece’s official creditors, the European Union, the IMF and the European Central Bank.
