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Euro zone July inflation uptick confirmed despite COVID-19 crisis

BRUSSELS (Reuters) - Euro zone year-on-year inflation slightly rose in July and core indicators surged despite deflationary pressures amid the economic crisis caused by the COVID-19 pandemic, final data from the European Union statistics office showed on Wednesday.

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Eurostat confirmed its earlier estimate of a 0.4% rise of annual inflation in July, after a 0.3% increase in June.

The agency also left unchanged its flash estimates, released on July 31, on the inflation’s core indicators, which exclude the most volatile prices.

Stripping away food and energy prices, a key measure watched by the European Central Bank, inflation rose in July by 1.3% from 1.1% in June, Eurostat said.

An even narrower gauge, which also excludes alcohol and tobacco, jumped to 1.2% from 0.8% in June.

The increases surprised economists who had expected a slowdown of the inflation, as Germany temporarily cut its sales tax rate in July while the bloc’s economy remained weakened by lower activity amid the pandemic.

Economists interpreted the higher-than-expected figure as “almost certainly more noise than signal,” Bert Colijn at ING bank said.

J.P. Morgan said the increase was mostly due to the delayed summer sales period in France and Italy and was not expected to continue in the following months, when core indicators are forecast to slow down.

Despite the small uptick, the July reading remains far from the ECB target of a “below, but close to 2%” rate in the medium term.

Eurostat on Wednesday slightly reviewed downward the month-on-month reading of consumer prices, which dropped by 0.4% in July, instead of the 0.3% fall it had earlier estimated.

Reporting by Francesco Guarascio @fraguarascio

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