Eurozone inflation falls slightly

Inflation across the 13 nations in the eurozone fell slightly to 1.8% in July, from 1.9% the month before, official figures show, reported The BBC.

The Eurostat figures were in line with forecasts and remain below the European Central Bank's (ECB) 2% target.

Education, hotels, tobacco and alcohol were again the main drivers of inflation, the statistics group said.

Looking ahead, analysts said the ECB was still likely to raise interest rates from 4% to 4.25% in September.

Some analysts expect rates to hit 4.5% by the end of the year, getting them back up to the level of other industrialised nations, as the region enjoys a recovery in economic growth.

This is despite the uncertainty created by volatility in global stock markets, which has seen the ECB inject extra funds into the banking system to try and calm fears about a lack of liquidity.

"The turmoil in financial markets has not yet significantly eased [the ECB's] inflationary concerns," said ING Bank analyst Martin Van Vliet.

"Market participants are increasingly flirting with the idea that the turmoil will scare the ECB away from further rate hikes. While acknowledging the risk, we still think it is premature to throw in the towel on further rate hikes."

However, Bear Stearns and Citigroup said that imminent rate rises were unlikely.

"It's a crazy situation of a central bank raising rates and at the same time adding liquidity into the system. What is the message the central bank is putting across by doing that?" said Bear Stearns currency strategist Steve Barrow.

"We don't think it will go ahead with it. In a situation like this, central banks have to show a certain degree of flexibility."