Frankfurt: euro area inflation The month hit another record high, beating expectations and further cementing the case for a major European Central Bank rate hike ahead of the year-end peak.
Consumer price growth in the 19 countries that share the euro currency rose to 9.1% in August, up from 8.9% a month earlier, well ahead of expectations of 9% and well evident. ECBtarget of 2%, data from the European Union’s statistics agency Eurostat showed on Wednesday.
Energy costs remained the driver of prices, but food inflation also rose in the double-digit region, while non-energy industrial goods, particularly for ECBs, rose 5%.
These figures only add to the concerns of the ECB as it prepares for another big rate hike next week, but the outlook is even more bleak.
Rising energy prices before the start of the summer season and the reversal of some German subsidies almost ensured that inflation would continue to climb and exceed 10% before peaking at the end of the year.
But more importantly, a closely watched underlying price increase, which filters out volatile food and energy prices, shows that rapid price increases are spreading through the economy.
Inflation excluding food and fuel prices rose from 5.1% to 5.5%, while an even narrower measure, excluding alcohol and tobacco, rose from 4.0% to 4.3%.
“Inflation will probably rise strongly next month, moving towards 10%, as some energy-relief measures in Germany expire,” UniCredit said in a note ahead of the data release.
All this adds up to the case of a large rate hike by the ECB on 8 September and the figures are in favor of a growing camp of policy hawks looking for an extraordinarily large hike.
Some ECB policymakers are making the case for a 75 basis point increase in the deposit rate, which is now at zero, while others are arguing for a more modest increase in line with July’s move of 50 basis points.
Markets too are now divided with bets sloping towards 75 basis points, but still view this as an open question.
Still, regardless of the September decision, the direction of travel for policy rates appears clear.
With inflation being too high for too long, it is now in danger of being trapped, so interest rates will continue to climb, possibly in the remaining three ECB meetings this year.
Rates should reach the so-called neutral level, which neither stimulates nor slows the economy, around the end of the year and the only question is whether the ECB will go beyond that level.
However, such a decision is months away, and by then the bloc is likely to be in a recession as high energy costs weigh on production and consumer spending.
This will force the ECB to re-evaluate its stance and consider whether the slowdown is enough of a deflationary force to halt consumer price growth or if an outright policy is still needed.
Consumer price growth in the 19 countries that share the euro currency rose to 9.1% in August, up from 8.9% a month earlier, well ahead of expectations of 9% and well evident. ECBtarget of 2%, data from the European Union’s statistics agency Eurostat showed on Wednesday.
Energy costs remained the driver of prices, but food inflation also rose in the double-digit region, while non-energy industrial goods, particularly for ECBs, rose 5%.
These figures only add to the concerns of the ECB as it prepares for another big rate hike next week, but the outlook is even more bleak.
Rising energy prices before the start of the summer season and the reversal of some German subsidies almost ensured that inflation would continue to climb and exceed 10% before peaking at the end of the year.
But more importantly, a closely watched underlying price increase, which filters out volatile food and energy prices, shows that rapid price increases are spreading through the economy.
Inflation excluding food and fuel prices rose from 5.1% to 5.5%, while an even narrower measure, excluding alcohol and tobacco, rose from 4.0% to 4.3%.
“Inflation will probably rise strongly next month, moving towards 10%, as some energy-relief measures in Germany expire,” UniCredit said in a note ahead of the data release.
All this adds up to the case of a large rate hike by the ECB on 8 September and the figures are in favor of a growing camp of policy hawks looking for an extraordinarily large hike.
Some ECB policymakers are making the case for a 75 basis point increase in the deposit rate, which is now at zero, while others are arguing for a more modest increase in line with July’s move of 50 basis points.
Markets too are now divided with bets sloping towards 75 basis points, but still view this as an open question.
Still, regardless of the September decision, the direction of travel for policy rates appears clear.
With inflation being too high for too long, it is now in danger of being trapped, so interest rates will continue to climb, possibly in the remaining three ECB meetings this year.
Rates should reach the so-called neutral level, which neither stimulates nor slows the economy, around the end of the year and the only question is whether the ECB will go beyond that level.
However, such a decision is months away, and by then the bloc is likely to be in a recession as high energy costs weigh on production and consumer spending.
This will force the ECB to re-evaluate its stance and consider whether the slowdown is enough of a deflationary force to halt consumer price growth or if an outright policy is still needed.