By Ed Frankl
The eurozone’s inflation rate in August came in higher than expected, remaining at the same level as July, a sign the European Central Bank may be on course to press ahead with a further interest-rate hike in September.
According to preliminary data from the European Union’s statistics agency Eurostat, the euro area’s consumer price index rose 5.3% in August on year, surpassing the 5.1% that economists had predicted in a poll by The Wall Street Journal.
This rate of inflation matches the one recorded in July, after steadily declining from a high of 10.6% in October last year, as per FactSet data.
Inflation was partly driven by food prices, which saw a 9.8% increase in August compared to the same month in 2022. However, this represents a slight easing from the 10.8% recorded in July. On the other hand, energy prices continued to deflate in August, falling by 3.3% on year, although this decline was less severe than the 6.1% fall in July.
Core inflation, which excludes volatile components such as energy, food, alcohol, and tobacco prices, and is closely monitored by ECB policymakers as a measure of underlying inflation, declined to 5.3% in August, down from 5.5% in July, meeting expectations.
The decrease in core inflation may offer some relief for the central bank and support economists’ views that an interest-rate hike next month may not be necessary. Surveys on business sentiment and consumer confidence have indicated that the eurozone economy could be stagnating due to low demand for goods.
However, the overall outlook suggests that inflation remains higher than anticipated, especially considering that recent data revealed higher-than-expected inflation rates in Germany, France, and Spain.
In August, Germany experienced an inflation rate of 6.4%, France recorded 5.7%, Italy came in at 5.5%, and Spain at 2.4%, all on a EU-harmonized basis.
