Despite the European Central Bank (ECB) having raised its interest rates multiple times, inflation in the Euro area has unexpectedly not slowed further. Developments in the various member states show significant disparities.
Consumer prices in the Eurozone countries increased by 5.3% in August compared to the same month last year, as announced by Eurostat, the statistical office, in a preliminary estimate on Thursday. Experts surveyed by Reuters had expected a decrease to 5.1%. In July, the price increase was also 5.3%, compared to 5.5% in June.
However, core inflation, which excludes volatile prices for energy, food, alcohol, and tobacco, dropped to 5.3% from 5.5% the previous month. Many economists believe that core inflation better reflects fundamental price changes than overall inflation. This indicator is a crucial gauge for underlying inflation trends.
Energy No Longer the Main Driver of Price Increases
In August, energy prices dropped year-on-year by only 3.3%. In July, the decrease was 6.1%.
The costs for food, alcohol, and tobacco rose by 9.8%, compared to an increase of 10.8% in the previous month. Industrial products excluding energy became 4.8% more expensive. In July, the increase was at 5.0%. Prices for services increased by 5.5%, compared to 5.6% in July.
No Consistent Trends Observed
In the Eurozone countries, there’s no clear trend. In Germany, the price development remains stable, with only a slight decrease in inflation. Consumer prices were on average 6.1% higher than last year, as announced by the German Federal Statistical Office in a preliminary estimate.
However, the situation in Austria and France is different. There, inflation accelerated again in August. Consumer prices calculated by European standards rose in France by 5.7%, as stated by the French statistical office Insee. In Austria, the harmonized inflation rate increased to 7.6%, according to a preliminary estimate by Statistik Austria.
Exemplary Development in the Netherlands
In the Netherlands, the reduction of inflation is making good progress. There, prices rose in August year-on-year by only 3.0%, the slowest increase in two years, according to a preliminary estimate from the statistical office. In July, the inflation rate in the Netherlands, the Eurozone’s fifth-largest economy, was 4.6%.
The ECB Remains Vigilant
For the European Central Bank, the inflation trend in the Eurozone is crucial for shaping its interest rate policy. The ECB has raised interest rates nine times in a row since the summer of 2022 in the fight against strong price increases. The deposit rate, which banks receive when they park excess money at the central bank, is now 3.75%. In June 2022, this rate was still at minus 0.5%. The future of the tighter monetary policy remains unclear, as stated by ECB President Christine Lagarde. ECB Director Isabel Schnabel pointed out that the ECB cannot predict the peak of interest rates.