Eurozone Inflation Lowest Since Mid-2021

(RTTNews) - Eurozone inflation softened to the lowest since mid-2021 in August on a fall in energy prices, adding chances of another interest rate cut by the European Central Bank.

The harmonized index of consumer prices rose 2.2 percent on a yearly basis in August, slower than July's 2.6 percent increase, flash data from Eurostat showed Friday. This was the lowest since July 2021 and also matched expectations.

Excluding prices of energy, food, alcohol and tobacco, core inflation slowed only marginally to 2.8 percent from 2.9 percent.

On a monthly basis, the HICP moved up 0.2 percent.

Among main components of HICP, services showed the highest annual growth of 4.2 percent after posting 4.0 percent rise in July. Food, alcohol and tobacco prices also rose at a faster pace of 2.4 percent after a 2.3 percent gain.

Non-energy industrial goods moved up 0.4 percent, weaker than July's 0.7 percent rise. Meanwhile, energy prices fell 3.0 percent, marking the first drop in four months.

Among big-four economies, Germany's HICP inflation hit 2.0 percent in August and Italy showed the lowest rate of 1.3 percent.

France's inflation moderated to 2.2 percent from 2.7 percent. Likewise, Spain's inflation came in at 2.4 percent, down from 2.9 percent a month ago.

At the July policy meeting, the ECB had kept the interest rates unchanged after lowering them for the first time in five years at the June meeting.

"For the ECB, the modest progress in core inflation and wages now and expectations for next year seem enough to cut by 25bps in September," ING economist Bert Colijn said.

But the economist said this remains a slow and gradual process of releasing the brakes on the economy as the central bank continues to be concerned about upside risks to the inflation outlook.

Capital Economics' economist Jack Allen-Reynolds said the unexpected increase in services inflation will stop the ECB from cutting interest rates at its next meeting in September.

If services inflation declines over the rest of the year, the ECB is likely to continue gradually reducing interest rates with another 25 basis point cut in December.