Consumer prices in the eurozone rose 5.3 percent in August from the previous month, sticking to the same pace as the previous month and beating economists’ expectations for a slowdown. An initial assessment By the Statistical Office of the European Union.
Although inflation has eased materially from its peak of 10 percent in October last year, there are signs that some inflationary pressures remain. Food inflation was again the biggest contributor to the headline rate, with the average across the 20 countries that use the euro currency rising 9.8 percent from the previous year.
Inflation provided some upward momentum thanks to a rise in energy costs, which rose 3.2 percent in August from the previous month.
Core inflation, which strips out food and energy prices and is used as a measure of domestic price pressures, fell to 5.3 percent from 5.5 percent in July.
By country: Higher energy prices add to inflationary pressures in the region’s largest economies.
In some of Europe’s major economies, food inflation is easing as energy prices recover. The annual inflation rate rose to 5.7 percent in France and 2.4 percent in Spain this month.
In Spain, inflation fell below the European Central Bank’s target of 2 percent in June, but has since rebounded above it.
Inflation in Germany, Europe’s largest economy, was 6.4 percent in August, down slightly from the previous month as household energy and motor fuel costs rose.
What’s next: The European Central Bank is weighing another rate hike.
The acceleration in inflation in some of the region’s biggest economies comes two weeks ahead of the European Central Bank’s next policy meeting. As analysts sift through the data, the question is whether the reports are worrisome enough to force policymakers to raise interest rates again at a meeting in mid-September. The central bank has raised rates nine times in a row, by 4.25 percentage points in about a year, and there is growing evidence that higher rates are constraining the economy, particularly by a decline in credit.
Last month, central bank president Christine Lagarde said she and her colleagues had an “open mind” about the September decision and subsequent meetings. Policymakers are trying to strike a balance between raising rates enough to control high inflation while not causing undue economic pain.
“We can rise, we can hold,” he said. “What is decided in September is not certain; It may vary from one encounter to another.”
Isabelle Schnabel, a member of the bank’s executive committee, said before euro zone data were released on Thursday that “underlying price pressures remain stubbornly high, and domestic factors are now the main drivers of inflation in the euro area.” This means a “sufficiently restrictive” policy stance is needed to get inflation back to the Bank’s 2 percent target “in time,” he added.
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