Eurozone inflation falls to three-year low in August

Consumer prices slowed to 2.2 percent in August from 2.6 percent in July – Copyright GETTY IMAGES NORTH AMERICA/AFP/File SPENCER PLATT

Raziye AKKOC

Eurozone inflation fell to its lowest level in more than three years this month thanks to falling energy costs, official data showed on Friday, raising expectations of a European Central Bank interest-rate cut.

Consumer price rises slowed to 2.2 percent in August compared to the same month last year after reaching 2.6 percent in July, closing in on the European Central Bank’s two-percent target.

The August inflation rate was the lowest since July 2021 and in line with expectations by analysts for FactSet and Bloomberg.

But core inflation, which strips out volatile energy, food, alcohol and tobacco prices and is a key indicator for the bank, cooled slightly to 2.8 percent in August from 2.9 percent in July, Eurostat said.

Energy prices in the 20-country single currency area fell by 3.0 percent in August, after a rise of 1.2 percent in July, according to the EU’s statistics agency.

Food and drinks prices rose by 2.4 percent this month in the eurozone, at a slightly faster rate than the 2.3 percent registered in July.

Friday’s data will provide some relief after inflation unexpectedly edged up in July.

The ECB launched an aggressive rate-hiking campaign in July 2022 to tame red-hot inflation, which peaked at 10.6 percent in October that year as Russia’s invasion of Ukraine sent food and energy prices soaring.

The ECB cut rates for the first time in June this year.

The Frankfurt-based institution has since kept rates unchanged but the market hopes another cut will come after a monetary policy meeting on September 12.

An ECB board member warned on Friday before the data was published that there should be a cautious approach to loosening monetary policy.

“Policy should proceed gradually and cautiously,” Isabel Schnabel said.

“The pace of policy easing cannot be mechanical. It needs to rest on data and analysis,” she said during a speech in the Estonian capital Tallinn.

– Falling inflation in France, Germany –

There were also welcome slowdowns in the inflation rate in Europe’s two biggest economies.

Germany registered an annual rate of inflation of 2.0 percent in August, down from 2.6 percent in July, Eurostat said.

Meanwhile, consumer prices in France reached 2.2 percent this month, down from 2.7 percent in July.

Across the eurozone, Lithuania recorded the lowest inflation rate in August, at 0.7 percent, Eurostat data showed.

Latvia came second, registering 0.9 percent inflation this month.

But Belgium still recorded the highest rate of 4.5 percent in August.

Other Eurostat data published on Friday showed the unemployment rate in the single currency area fell slightly to 6.4 percent in July from 6.5 percent in June.