BRUSSELS, Aug 19 - Euro zone inflation eased to 1.9 percent in July from 2.0 percent in June as consumer prices posted their biggest monthly drop in two years, the European Union statistics office said on Tuesday. Prices fell 0.2 percent from the previous month as the cost of food and clothing declined and the overall drop would have been even larger had it not been for increases in the prices of holiday related services. The monthly drop in prices was bigger than the consensus forecast of a 0.1 percent fall and meant the inflation rate was left unrevised from an early estimate, contrary to expectations it would be revised up to the European Central Bank's tolerance threshold of two percent. A heatwave in Europe is expected to have depressed agricultural production and will push up inflation in the euro zone in the third quarter, according to a survey.
But there was no sign that food prices were affected in July -- the cost of food fell 0.3 percent from the previous month and rose at the same 2.4 percent annual rate seen in June. Core inflation, which excludes volatile energy and unprocessed food costs, also eased in July. It fell to 1.9 percent from 2.0 percent in June as core prices fell 0.2 percent from the previous month. The inflation data comes the week after data showed the euro zone economy stagnated in the second quarter of the year as Germany and Italy, two of the region's biggest economies, fell into recession. There was evidence that subdued consumer demand might be making it hard for some retailers to raise prices. Clothing prices fell 5.5 percent from the previous month, and while summer sales were the key factor explaining the decline, prices were only 0.3 percent higher than a year earlier.
A breakdown by country showed persistently large divergences in national inflation rates, with Germany reporting the lowest rate, of 0.8 percent, and Ireland posting the highest, at 3.9 percent.//