DATA SNAP: Euro-Zone July CPI Sinks To Fresh Record Low

LONDON -- Consumer prices in the 16 countries that use the euro accelerated their decline to a fresh record low rate in July, but the earlier than expected return to growth in Germany and France may lead to a quicker emergence from deflation.

The European Union's official statistics agency, Eurostat, said Friday the consumer price index in the euro zone fell 0.7% on the year in July. In June the year-on-year rate fell 0.1%, the first annualized decline in the currency bloc's 10-year history.

The annual decline was greater than the 0.6% drop expected by economists surveyed by Dow Jones Newswires. The yearly CPI rate remains well below the level of around 2% growth that the European Central Bank targets in the medium term, although the ECB has said it expects consumer prices to decline for several months before beginning to increase by the end of the year.

However, unexpected news that the German and French economies may have pulled out of recession in the second quarter could lead to a readjustment of that forecast, as a return to growth in the currency bloc's two largest economies will exert upward pressure on prices.

Eurostat reported Thursday that the German economy grew at an annualized pace of 1.3% in the second quarter, while France expanded at an annualized rate of 1.4%. Those numbers ensured that total euro-zone gross domestic product in the second quarter dropped just 0.1% from the previous three months.