Euro zone return to inflation confirmed as food prices surge

August 18, 2016 5:17 AM EDT

People buy fruit and vegetables in a street market in Rome, Italy, August 11, 2016. Picture taken August 11, 2016. REUTERS/Max Rossi

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BRUSSELS (Reuters) - A modest uptick in euro zone inflation in July was confirmed by data on Friday which showed food prices surging over the year, although overall price indices still fell in 12 of the 19 member states.

Euro zone prices rose 0.2 percent year-on-year, Eurostat said, confirming its initial estimate of two weeks ago. Month-on-month, prices fell 0.6 percent from June.

The annual rate remains well short of the European Central Bank's target of just below 2 percent. Until the annual figure posted a 0.1 percent rise in June, prices had not risen in the 19 countries using the euro since January.

Core inflation, which excludes the most volatile components of unprocessed food and energy, was unchanged at 0.8 percent in July. The narrower inflation indicator, which excludes energy, food, alcohol and tobacco products, rose an unchanged 0.9 percent. Both were the same as initial estimates.

Energy prices fell heavily again in July, by 6.7 percent after a 6.4 percent annual drop in June and 8.1 percent recorded in May. Month-on-month, they were 1.0 percent lower.

Prices for services, the biggest component of the euro zone economy, rose 1.2 percent year-on-year, but the biggest increase was in food, where unprocessed foodstuffs rose 2.9 percent year-on-year in July, nearly double the 1.5 percent seen in June.

Prices of fruit were 6.4 percent higher than in July last year and vegetables 5.6 percent more expensive. A 1.6 percent annual increase in prices set by restaurants and cafes was the biggest contributor to the overall euro zone inflation figure.

Nonetheless, smaller economies in the east continued to lead the dozen euro zone states which posted negative annual rates in July, notably Bulgaria and Croatia, where prices fell 1.1 percent on the year, and Slovakia, where they were down 0.9 percent. Belgium, with inflation of 2.0 percent, and Sweden, with 1.1 percent, led those economies where prices rose.

(Reporting By Alastair Macdonald Editing by Jeremy Gaunt)

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