Eurozone inflation fell by four tenths in August to 2.2% year-on-year, according to a preliminary estimate published by Eurostat on Friday. This is the lowest reading since July 2021 and the closest to the 2% target set by the European Central Bank (ECB) in three years in which the emergence of the pandemic and the war in Ukraine with the resulting energy crisis have driven the consumer price index (CPI) to a record high. -time above 10%. On the side of the underlying CPI (it excludes in this case energy, food, alcohol and tobacco), more rigid in recent times and more observed by the monetary authorities, the title is less expansive, although also positive: the indicator falls by a tenth. to 2.8%. These advances end assess the ECB’s interest rate cut at its September meeting and will further open the debate about whether you should continue to reduce your immediately following appointments.
The preliminary data from Eurostat came with some reassurances after the national data released on Thursday moved the market. Both German inflation like the Spanish fell more than expected in August, to 1.9% and 2.2% respectively over a year. This decline is mainly due to base effects on energy prices, but it has helped to show that the disinflationary process is going in the right direction, thus supporting the thesis of a gradual easing by the ECB. This Friday, the French inflation added to the momentum, moderating in August to 1.9%, four-tenths less than the 2.3% in July. This is the first time that the French price index has been below 2% over a year in just three years, in August 2021.
The breakdown of the Eurostat report shows how the energy (thanks to the base effect, i.e. the comparison with the index from 12 months ago) and to the fresh food They helped to relax reading. On a monthly basis, the first game shows -1% and the second -0.5%. The durable goods They also contribute to disinflation with 0.4% over one year after three consecutive readings at 0.7%.
The problem, again, is the services. The sector continues to be a source of inflationary pressures in the region and its CPI shows a worrying increase of 4.2% year-on-year in August. With the exception of April, when it reached 3.7% due to the base effect of the previous Easter, the indicator has remained at 4% or more since September 2022. Experts were expecting 0.3% month-on-month for the third consecutive month, which allowed us to show some easing compared to the beginning of the year. But the latest 0.4% put an end to this situation.
Nuances such as that of the services mean that important voices within the ECB’s central power continue to call for caution and insist that the battle against inflation is not yet won. The most striking is once again that of the German economist Isabelle Schnabelmember of the central bank’s executive committee and considered by the press to be the “stick” of the body in recent times). “Given that the return to price stability depends on a series of critical assumptions, monetary policy must proceed gradually and cautiously,” he said in a speech ahead of the release of CPI data on Friday. “The pace of monetary policy easing cannot be mechanical. It must be based on data and analysis,” he added.
On Thursday evening, the Governor of the German Bundesbank and also a member of the Governing Council of the ECB, Joachim Nagela leading hawk, said officials should not rush to ease monetary policy, since their targets, though in sight, have not yet been met. Even the ECB’s chief economist, Philippe Lanealways more measured than his companions and closer to feeling conciliatory or accommodating (the pigeons) stressed this weekend that the return to 2% “is not yet certain”.
