Inflation Rate in Eurozone Holds Steady

The News

Consumer prices in the eurozone rose 5.3 percent in August compared with a year earlier, sticking at the same pace as the previous month and defying economists’ expectations for a slowdown, according to an initial estimate by the statistics agency of the European Union.

While inflation has slowed materially from its peak of above 10 percent in October last year, there are signs that some inflationary pressures are persistent, even as bloc’s economy weakens. Food inflation was again the largest contributor to the headline rate, rising 9.8 percent from a year earlier on average across the 20 countries that use the euro currency.

Inflation was also given some upward momentum by a jump 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 gauge of domestic price pressures, 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.

In some of the eurozone’s largest economies, rebounding energy prices offset slowing food inflation. The annual rate of inflation accelerated to 5.7 percent in France and to 2.4 percent in Spain this month.

In Spain, inflation had fallen below 2 percent, the European Central Bank’s target, in June, but has since climbed back above it.

Inflation in Germany, Europe’s largest economy, was 6.4 percent in August, slowing only slightly from the previous month, as household energy and motor fuel costs increased.

What’s Next: The European Central Bank weighs another rate increase.

The acceleration of inflation in some of the region’s largest economies arrives two weeks before the European Central Bank’s next policy meeting. As analysts parse the data, the question is whether the reports are troubling enough to persuade policymakers to raise interest rates again at their mid-September meeting. The central bank has raised rates nine consecutive times, by 4.25 percentage points in about a year, and there is growing evidence that higher rates are restraining the economy, particularly as lending declines.

Last month, Christine Lagarde, the president of the central bank, said she and her colleagues had “an open mind” about the decision in September and subsequent meetings. Policymakers are trying to strike a balance between raising rates enough to stamp out high inflation, while not causing unnecessary economic pain.

“We might hike, and we might hold,” she said. “And what is decided in September is not definitive; it may vary from one meeting to the other.”

On Thursday, before the eurozone data was released, Isabel Schnabel, a member of the bank’s executive board, said that “underlying price pressures remain stubbornly high, with domestic factors now being the main drivers of inflation in the euro area.” This meant a “sufficiently restrictive” policy stance was needed to return inflation to the bank’s 2 percent target “in a timely manner,” she added.