Inflation in the eurozone edged higher in July amid rising energy prices linked to intensified conflict in the Middle East, official figures showed Friday. Consumer price inflation in the 19-country bloc increased to 2.9 percent year-on-year, up from 2.8 percent in June, according to data released by the European Union’s statistics agency, Eurostat. This marked a continuation of inflation elevated above the European Central Bank’s (ECB) target of 2 percent.
Energy prices surged by 10 percent in July, accelerating from an 8.5 percent increase in June, primarily driven by volatility stemming from the recent military tensions between the United States and Iran. Core inflation, which excludes the more volatile food and energy sectors, also ticked higher to 2.5 percent from 2.4 percent in June, reflecting broader underlying price pressures. Meanwhile, inflation for food and beverages moderated to 1.2 percent, down from 1.5 percent the previous month.
Last week, ECB President Christine Lagarde cautioned that the energy price shock related to the US-Iran conflict has the potential to intensify further. The ECB maintained its key deposit rate on July 23 but signaled a possible rate increase in September to counter rising inflation risks as geopolitical uncertainty threatens to push prices higher.
In Germany, Europe’s largest economy, the unemployment rate rose unexpectedly in July to 6.4 percent, according to the Federal Employment Agency (BfA). The increase was attributed primarily to seasonal factors such as the holiday period and the conclusion of vocational training programs for young people. Raw data indicated a 71,000 increase in the number of jobless, pushing total unemployment above three million for the first time since May. Seasonally adjusted figures showed a smaller rise of 6,000. Compared with July 2025, unemployment was up by 28,000.
Daniel Terzenbach, a member of the BfA executive board, noted that both unemployment and underemployment increased significantly due to these seasonal influences, while sluggish labor market demand continued to limit job opportunities. The German Engineering Federation (VDMA) responded by calling for reforms to make employment more attractive and to reduce the regulatory burden on businesses, warning that without changes, a labor market recovery would remain elusive.
Despite the labor challenges and Middle Eastern tensions, German gross domestic product grew by 0.2 percent in the second quarter of 2026, beating expectations of a weaker performance. The economy showed resilience even with disruptions caused by the closure of the Strait of Hormuz, which exacerbated energy supply concerns.
In France, consumer prices also rose in July, climbing 2.1 percent year-on-year compared with a 1.8 percent increase in June. The country’s statistics agency, INSEE, attributed the rise to higher costs in the services and energy sectors. The provisional Harmonized Index of Consumer Prices (HICP) for France, which facilitates cross-country comparisons, recorded a 2.4 percent increase in July versus 2 percent in June. French officials highlighted that the inflation rise remains contained and consistent with moderate economic growth of 0.2 percent recorded in the second quarter.
The recent inflation data underscore the sensitivity of the eurozone economy to global geopolitical risks, particularly those affecting energy markets, while also highlighting ongoing challenges in the regional labor markets. Policymakers are closely monitoring these developments as they consider the path for monetary policy and economic reforms.