Energy prices are falling
Price increases in the Eurozone are weaker than they have been in three years
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The rise in the cost of living in the euro area is slowing once again. Inflation was last higher in July 2021. Energy prices once again played a significant role. In contrast, services and food became more expensive.
Prices in the euro area rose at their slowest pace in three years in August. Specifically, the inflation rate was 2.2 percent. It was the lowest year-on-year increase in consumer prices since July 2021, as the EU statistics office Eurostat announced. The main reason is the sharp fall in energy prices in the 20 euro countries. However, consumer prices for food, tobacco and alcohol and especially for services continued to rise at an above-average rate.
Inflation was highest in Belgium at 4.5 percent and lowest in the Baltic states of Latvia and Lithuania at less than one percent. For Germany, Eurostat reported inflation at 2 percent. The Federal Statistical Office reported 1.9 percent the day before. The difference results from different calculation methods. Eurostat uses the so-called harmonized consumer price index, which enables a comparison of the euro countries.
The European Central Bank (ECB) is aiming for inflation of two percent. In July, consumer prices in the euro area rose by 2.6 percent year-on-year, after 2.5 percent in June.
Core inflation above target
ECB Executive Board member Isabel Schnabel welcomed the falling inflation rate. However, the German economist was cautious about a possible key interest rate cut in September. Interest rate cuts must be done “gradually and carefully,” she said in a speech in the Estonian capital Tallin. This is shown above all by the “ongoing price pressure in the service sector.”
According to Eurostat, consumer prices in this area rose the most in August at 4.2 percent. The so-called core inflation – excluding the frequently fluctuating energy and food prices – is also still higher than desired at 2.8 percent in the euro area.
At the beginning of June, the ECB cut its key interest rates for the first time in almost five years. Since then, the central key interest rate at which commercial banks borrow money from the ECB has been 4.25 percent. The deposit interest rate relevant for savers is 3.75 percent. The weaker inflation could now pave the way for a further cut in key interest rates. The responsible committee of the Euro Central Bank will discuss the further course of monetary policy on September 13th.
EU labor market very robust
According to Eurostat, unemployment remained at a comparatively low level. In July, the rate in the common currency area fell again, seasonally adjusted, to an all-time low of 6.4 percent. In the euro countries, almost eleven million people were unemployed. In the entire EU with its 450 million inhabitants there were almost 13.2 million.
For Germany, Eurostat puts the unemployment rate in July at 3.4 percent, which is well below average. Only Poland, Malta and Slovenia have lower values in the EU; unemployment figures are significantly higher in Spain, Greece and the Baltics.
The Federal Employment Agency, on the other hand, expects a significantly higher rate of 6.0 percent for July and an increase to 6.1 percent for August. As with inflation, this is based on a different calculation method.
