Eurozone Inflation Drops to Three-Year Low

[Social Media]

 

Eurozone inflation has fallen to its lowest level in over three years, driven by declining energy costs, according to official data released on Friday. The latest figures have increased expectations that the European Central Bank (ECB) may soon cut interest rates. In August, consumer prices rose by 2.2 percent compared to the same month last year, down from 2.6 percent in July, moving closer to the ECB's target of two percent. 

 

This marks the lowest inflation rate since July 2021 and aligns with forecasts from analysts at FactSet and Bloomberg. Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco and serves as a key indicator for the ECB, also cooled slightly to 2.8 percent in August from 2.9 percent in July, according to Eurostat. 

 

The data brought some relief after inflation unexpectedly increased in July. In response to skyrocketing inflation, the ECB began a series of aggressive rate hikes in July 2022, as inflation peaked at 10.6 percent in October following Russia's invasion of Ukraine, which caused food and energy prices to surge. The ECB cut rates for the first time in June of this year and has since kept them unchanged, though the market now anticipates another cut after the ECB's policy meeting on September 12. 

 

According to Sam Miley of the London-based Centre for Economics and Business Research, the data "makes a rate cut at the European Central Bank's upcoming September policy meeting more likely." However, Miley also noted that "the higher rate of core inflation and continually tight labour market will present risk factors to implementing looser monetary policy." 

 

Francois Villeroy de Galhau, the head of the French central bank and a member of the ECB governing council, echoed these sentiments, advocating for a September rate cut in an interview with French magazine Le Point. He described the move as "fair and wise," adding, "If we waited until we were actually at two percent to lower rates, we would be acting too late." 

 

Despite the optimism, caution remains. Before the data was released, ECB board member Isabel Schnabel emphasized the need for a careful approach to loosening monetary policy. "The pace of policy easing cannot be mechanical. It needs to rest on data and analysis," Schnabel said in a speech in Tallinn, Estonia. 

 

The improved inflation performance in August was largely due to a 3.0 percent drop in energy prices, including those at the pump, reversing the 1.2 percent increase seen in July. Meanwhile, food and drink prices rose by 2.4 percent, slightly above the 2.3 percent growth recorded in July. Services inflation also accelerated to 4.2 percent in August from 4.0 percent in July, a change that could be partly attributed to the Olympic Games in Paris. 

 

"Services inflation might not be quite as bad as it first appears," commented Jack Allen-Reynolds of Capital Economics. He suggested that the Olympic Games contributed to the rise, particularly through increased accommodation and transport costs. Allen-Reynolds expects the ECB to cut rates in September and again in December, provided services inflation declines over the remainder of the year. 

 

There were positive signs in some of Europe’s largest economies, too. Germany saw its annual inflation rate fall to 2.0 percent in August, down from 2.6 percent in July, while France's consumer prices reached 2.2 percent, a decrease from 2.7 percent the previous month. Lithuania recorded the lowest inflation rate in the eurozone at just 0.7 percent. 

 

Eurostat also reported a slight drop in the eurozone unemployment rate, which fell to 6.4 percent in July from 6.5 percent in June. Meanwhile, across the Atlantic, the United States is also expected to implement a rate cut in September, as data showed the Federal Reserve’s preferred inflation measure held steady in July. 

 

With these developments, the outlook for further monetary easing appears promising, although caution is still advised given ongoing economic uncertainties.

 

Credit: ABC News 2024-09-02

 

 

 

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[Chelseafan]

Sort of good news but household costs for utilitiy bills, food, clothing etc are still a lot higher than they were pre-Ukraine, some as high as 30%+. Peoples wages have stagnated so in fact we we are lot worse off before the war.

My electric bill went from £80/month to £210/month!

 

As a buyer for a major global retailer, prices went up during the Ukraine crisis - understandable, but as costs prices for commodities dropped I have seen very few price decreases. The likes of P&G, Coke Unilever, Kraft etc are milking us dry. High prices set to stay I'm afraid.

 

 

 

Edited September 2 by Chelseafan