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Eurozone consumer prices rose 5.3% year-on-year in August, on pace with the previous month, defying economists' expectations for an economic slowdown, according to initial estimates from the European Union's statistics office. did.
Inflation has slowed significantly since October's peak of more than 10%, but there are signs that some inflationary pressures may persist despite the region's weaker economies. Food inflation was once again the biggest driver of headline interest rates, rising by 9.8% year-on-year on average across the 20 countries that use the euro currency.
Energy costs also rose 3.2% month-on-month in August, giving some upward momentum to inflation.
Core inflation, which subtracts food and energy prices and is used as a measure of domestic price pressures, slowed to 5.3% from 5.5% in July.
By country: Rising energy prices are increasing inflationary pressures in the region's largest economies.
A recovery in energy prices offset a slowdown in food inflation in some of the euro zone's largest economies. This month, annual inflation accelerated to 5.7% in France and 2.4% in Spain.
Spain's inflation rate fell below the European Central Bank's 2% target in June, but has since risen again and surpassed that level.
Inflation in Germany, Europe's largest economy, was 6.4% in August, slowing only slightly from the previous month as the cost of household energy and car fuel rose.
What's next: The European Central Bank is considering further rate hikes.
Inflation will accelerate in some of the region's biggest economies two weeks before the European Central Bank's next policy meeting. The question as analysts crunch the data is whether the report matters enough to convince policymakers to raise rates again at their mid-September meeting. The central bank has raised interest rates nine times in a row by 4.25 percentage points in about a year, adding to growing evidence that higher interest rates are holding back the economy, especially as lending declines.
Last month, central bank President Christine Lagarde said she and her colleagues had an “open mind” about the decisions taken in September and subsequent meetings. Policymakers are trying to strike a balance between raising interest rates enough to quell high inflation and not causing unnecessary economic pain.
“We may raise interest rates or we may leave them unchanged,” Lagarde said. “And what is decided in September is not final. It may vary from meeting to meeting.”
On Thursday, ahead of the release of eurozone statistics, central bank board member Isabel Schnabel said: “Underlying price pressures remain high and domestic factors are now the main driver of inflation in the eurozone. “There is,” he said. It added that this meant a “sufficiently restrictive” policy stance was needed to bring inflation back to the central bank's 2% target “in a timely manner”.
