Eurozone, August inflation at 2.2 per cent. The figure may pave the way for new rate cuts

Brussels – In August, eurozone inflation is expected to stand at 2.2 per cent, down almost half a point from July’s figures (2.6 per cent). Eurostat’s preliminary estimate could play a role in the decisions that the European Central Bank’s Governing Council will be called upon to take in about two weeks at its meeting on 12
September. Eurostat will only make the final data available after the ECB board meeting. Still, the figure coming out of Luxembourg indicates a general trend close to the Eurotower’s reference target of 2 per cent. The ECB will have to decide whether to proceed with a possible interest rate cut, which is why the freshly published information is of some importance.

ECB President Christine Lagarde did not rule out in September the possibility of a rate cut when the data available to her staff differed from the current ones, which might give the members of the Governing Council a hand in deciding this. In that case, we could see a quarter-point cut (-0.25 per cent), although there are those, such as Foreign Minister Antonio Tajani, who would like to see a more significant easing of restrictive monetary policies. “I think it is right to cut the cost of money by 0.50 per cent; of course, it is up to the ECB to decide,” the finance minister said on the sidelines of the informal meeting of foreign ministers.

The ECB will decide, that’s for sure. But it may be a less obvious choice than expected. Looking at Eurostat’s preliminary data, the contribution to the decline in inflation in August came mainly from non-energy industrial goods (0.4 pct, compared to 0.7 pct in July) and energy (-3.0 pct, compared to 1.2 pct in July). But among the other main components of euro area inflation, there are slight increases for services (4.2pct, compared to 4.0pct in July) and “food, alcohol and tobacco” (2.4pct, compared to 2.3pct in July). The so-called core inflation runs opposite general inflation, which could fuel new inflationary spirals. Something that cannot be overlooked.