Euro zone inflation falls further in comforting sign for ECB

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FRANKFURT, July 31 (Reuters) – Euro zone inflation fell further in July and most measures of underlying price growth also eased, in a largely comforting sign for the European Central Bank (ECB) as it considers ending a brutal string of interest rate hikes.

Consumer prices grew by 5.3% this month versus 5.5% in June, extending a downtrend that started in the autumn.

Excluding energy and unprocessed food, prices increased by 6.6% after a 6.8% rise a month earlier.

While this is still a far cry from the ECB’s 2% target, the reading may help policymakers argue that inflation in the euro zone is on a clear, albeit gentle, downward path and they can afford to skip raising interest rates at least at their next meeting.

The ECB raised borrowing costs for the ninth consecutive time last week, but President Christine Lagarde flagged the possibility of a pause in September as inflation pressures showed tentative signs of easing and recession worries mounted.

Prices for services stood out once more, however, as they accelerated to a 5.6% annual increase in July from 5.4% in June, likely reflecting growth in nominal wages and a greater desire to spend on travel and entertainment after the COVID-19 pandemic.

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