Euro area inflation lower than expected in August but still above ECB target

inflation 14 September 2023, Hesse, Frankfurt/Main: Christine Lagarde, President of the European Central Bank (ECB), answers questions from journalists at the press conference. The ECB is raising the key interest rate by a further 0.25 percentage points to 4.5 percent. The ECB's Governing Council thus decided on Thursday in Frankfurt to raise interest rates for the tenth consecutive time since July 2022. Photo: Boris Roessler/dpa (Photo by Boris Roessler/picture alliance via Getty Images)
Christine Lagarde, president of the European Central Bank (ECB). The latest EU inflation figures come after the ECB hiked rates again last week by 25 basis points to 4%, a record high. Photo: Boris Roessler/picture alliance via Getty

Euro area, or eurozone, annual inflation has come in lower than expected at 5.2% for August, down from 5.3% in July, according to latest data from Eurostat, the statistical office of the European Union.

August inflation was expected to come in at 5.3%. However, the figure is still substantially above the European Central Bank’s (ECB) 2% medium term inflation target.

The lowest annual rates were registered in Denmark (2.3%), Spain and Belgium (both 2.4%). The highest annual rates were recorded in Hungary (14.2%), Czechia (10.1%) and Slovakia (9.6%). Compared with July, annual inflation fell in fifteen member states, remained stable in one and rose in eleven.

In August, the highest contribution to the annual euro area inflation rate came from services (+2.41 percentage points (pp)), followed by food, alcohol & tobacco (+1.98 pp), non-energy industrial goods (+1.19 pp) and energy (-0.34 pp).

Meanwhile, European Union annual inflation was 5.9% in August 2023, down from 6.1% in July. A year earlier, the rate was 10.1%.

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Last week, the ECB hiked interest rates again by 25 basis points to 4%, making it the highest level since the euro was launched in 1999.

"Inflation continues to decline but is still expected to remain too high for too long," the ECB said on Thursday.

Governing council member, Francois Villeroy de Galhau, said the ECB will keep interest rates at 4% for as long as needed to tame inflation.

“Looking at the situation today, we think that is a good level and barring surprises — we are pragmatic, we look at how inflation evolves — it’s more important now to be patient, to be tenacious,” he told BFM TV Tuesday.

“We have the right dose, but we have to take the medicine for a sufficiently long time and we will see the deceleration of inflation.”

His comments followed data released by the Bank of France, which Villeroy heads, on macroeconomic forecasts that showed upward revisions to inflation for this year and next.

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Moreover, ECB president Christine Lagarde warned that she "can't say" that rates are at a peak and that the bank will be data dependent.

Policymakers, including Slovakia’s Peter Kazimir, have also previously warned that eurozone inflation will fail to revert to the 2% target without further rate increases.

The euro area consists of the member states of the European Union (EU) that have adopted the euro as their currency.

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