• The European Union statistics agency reported Tuesday that headline inflation in the Eurozone fell to 2.5% in July, which was in line with analysts’ expectations.
  • The core inflation rate, which excludes volatile items such as energy, food and alcohol, was 2.9% in the previous month. This is just a little bit below the analyst’s forecast of 2.8%.

The European Union’s Statistics Agency reported Tuesday that headline inflation in the Eurozone fell to 2.5% during June. Core and services inflation, which are closely watched, remained unchanged.

The headline figure was consistent with what economists surveyed by Reuters expected. The inflation rate had risen from 2.4% to 2.6%.

Core inflation excluding volatile items such as energy, food, tobacco and alcohol remained at 2.9% in the previous month, just missing the economists’ forecast of 2.8%.

The rate of service price increases also remained unchanged at 4,1%.

After the European Central Bank first 25 basis point reduction in July, investors will be able to parse the data and determine what it means for the future trajectory of interest rates within the 20-nation Eurozone.

As the base effects of the energy market wind down, volatility in the consumer prices index was expected.

In June, energy inflation was 0.2% year-on year in the Eurozone, a dramatic change from earlier this year, when the sector exhibited a strong deflationary force.

On Tuesday, ECB vice president Luis de Guindos said to CNBC’s Annette Weisbach, that while the central banks was confident the inflation would converge towards its 2% goal, the next months would be a bumpy road and that there is no predetermined path for monetary policies. He made his comments on the sidelines at the ECB Forum for Central Banking, held in Sintra.

According to LSEG data, the money markets expect two more interest rate cuts of 25 basis points at each of the ECB’s four remaining meetings in this year. According to LSEG pricing data, they only price a 33% probability of another rate cut in this month.

Following the release of the data, the euro, which had struggled over the past few weeks due to the political uncertainty surrounding the upcoming French election, was slightly higher. At 10:30 am London time, it was down 0.2% versus the U.S. Dollar and 0.05% versus the British Pound.

Kyle Chapman of Ballinger Group’s FX markets analysts said that despite a slight drop in food prices – with inflation for unprocessed foods falling from 1.8% to 1.4% – the consumer price index data was “a virtual repeat” of May data.

“That is enough to put a pause in the ECB’s meeting this month. “The stickiness of services inflation could start to be a real concern among policymakers, which puts a spanner into the works for any rate cuts,” Chapman wrote in a note.

The ECB will not cut rates until there is a clear downtrend in the inflation of services.

Chapman said that the interest rate outlook is dependent on whether or not quarterly ECB macroeconomic projections are higher.

ECB staff increased their forecast for 2024 annual headline inflation to 2.5%, up from 2.3%. They also raised their 2025 projection to 2.2%, up from 2%.

This article has been updated in order to reflect more accurately the increase in inflation between April and May.