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The News
Consumer prices in the eurozone rose 5.3 percent in August compared with a year earlier, remaining at the same pace as the previous month, according to an initial estimate by the statistics agency of the European Union. This defied economists’ expectations for a slowdown.
Although inflation has slowed down from its peak of above 10 percent last year, there are indications that some inflationary pressures persist, despite the weakening economy. Food inflation was the largest contributor to the headline rate, rising 9.8 percent from a year earlier.
Energy costs also played a role in driving inflation up, with a 3.2 percent increase in August compared to the previous month. Core inflation, which excludes food and energy prices, slowed to 5.3 percent from 5.5 percent in July.
By Country: Higher energy prices add to inflation pressures in the region’s largest economies.
Rebounding energy prices offset slowing food inflation in some of the eurozone’s largest economies. The annual rate of inflation increased to 5.7 percent in France and 2.4 percent in Spain this month. In Spain, inflation had fallen below the European Central Bank’s target of 2 percent in June but has since climbed back above it. In Germany, the inflation rate was 6.4 percent in August, showing a slight slowdown compared to the previous month, driven by increased household energy and motor fuel costs.
What’s Next: The European Central Bank weighs another rate increase.
The acceleration of inflation in some of the region’s largest economies comes just before the European Central Bank’s next policy meeting. Analysts are analyzing the data to determine if it is concerning enough to persuade policymakers to raise interest rates again at the mid-September meeting. The central bank has already raised rates nine consecutive times in the past year, by 4.25 percentage points, and there is growing evidence that higher rates are impacting the economy, particularly in terms of lending decline.
Christine Lagarde, the president of the central bank, mentioned that the decision on rate increase is still open for discussion in September and beyond. Policymakers are striving to strike a balance between controlling high inflation and avoiding unnecessary economic pain. Isabel Schnabel, a member of the bank’s executive board, stated that “underlying price pressures remain stubbornly high, with domestic factors now being the main drivers of inflation in the euro area.” Therefore, she emphasized the need for a sufficiently restrictive policy stance to bring inflation back to the bank’s 2 percent target in a timely manner.
