German Inflation Falls Further to 1.8% in July

German Inflation Drops to 1.8% in July, Exceeding Expectations

By Maria Martinez

BERLIN (Reuters) -German inflation fell slightly more than expected to 1.8% year- on-year in July, preliminary data from the federal statistics office showed on Thursday, another sign of easing price pressures in Europe's biggest economy.

Analysts polled by Reuters had forecast EU-harmonised inflation decreasing slightly to 1.9% from 2.0% the previous month.

Germany's core inflation rate, which excludes volatile food and energy prices, remained unchanged at 2.7% in July.

The German data comes ahead of the euro zone inflation release on Friday. Inflation in the bloc is expected at 1.9% in July down from 2.0% in the previous month, according to economists polled by Reuters.

The European Central Bank left interest rates unchanged last week and offered a modestly upbeat assessment of the euro zone economy, raising doubts among investors about further policy easing.

CHEAPER ENERGY, PRICIER FOOD

The inflation data show that energy prices fell by 3.4% in July compared to the previous year, while food prices rose 2.2%.

"The strong euro compared to a year ago has a positive effect on goods prices, especially the costs of energy imports," said Michael Heise, chief economist at HQ Trust.

Services inflation, which has been stubbornly high, fell to 3.1% in July from 3.3% in June.

"Price pressures in the services sector continue to ease slowly, probably because wage costs are rising more slowly and it is also becoming more difficult for companies to pass higher costs on to their customers," said Ralph Solveen, senior economist at Commerzbank.

(Additional reporting by Miranda Murray and Reinhard Becker, Editing by Rachel More and Toby Chopra)