Eurozone inflation eases unexpectedly to 2.4 per cent in July

Annual eurozone inflation eased unexpectedly in July to 2.4 percent from 2.5 percent in May, data from the EU's Eurostat data agency showed Thursday, but analysts said the fall would not halt the ECB from lifting interest rates.

Eurostat had previously estimated that inflation held steady in July at 2.5 percent and private economists had also forecast a rate of 2.5 percent for last month.

Despite the decrease, the rate of price growth in the eurozone remains above the European Central Bank's preferred level of close to but less than two percent.

Global Insight economist Howard Archer said: "The edging back in headline annual consumer price inflation ... will not deter the ECB from lifting interest rates higher and a further 25 basis points hike to 3.25 percent remains odds on for October."

Earlier this month, the Frankfurt-based central bank raised its benchmark "refi" refinancing rate by a quarter of a percentage point to 3.00 percent in part to try to keep oil-price inflationary pressures in check.

It was the fourth such move since December and ECB watchers expect the bank to continue to raise eurozone borrowing costs in coming months in order to keep area-wide inflation down.

Despite the decrease in headline inflation in July, a breakdown of eurozone data showed that prices excluding the volatile items of energy and unprocessed food -- the ECB's preferred measure of core inflation -- inched up to 1.6 percent from 1.5 percent.

However, prices excluding energy, food, alcohol and tobacco -- Eurostat's favoured measure of core inflation -- were steady in July at 1.4 percent.

Archer at Global Insight said that the increase in core inflation excluding energy and unprocessed foods "will reinforce the ECB's concerns that underlying inflationary pressures are creeping up."

Economists said that the case for higher interest rates was especially strong in light of recent eurozone growth figures, which would give the ECB confidence that higher borrowing costs would not derail the expansion.

"Growth outcomes look increasingly healthy and broad based in the euro area, despite energy and now food price developments continuing to sap consumer real incomes," UBS economist Edward Teather said.

"This data is consistent with higher ECB policy rates," he added.

Eurostat estimated on Monday that the eurozone clocked its fastest growth since the heady days of the dot.com boom in the second quarter when the 12-nation economy expanded 0.9 percent over the first three months of the year.

Meanwhile, headline inflation in the 25-nation European Union (EU) was unchanged in July at 2.4 percent.