Europe’s inflation rate remained at a rate of 5.3% in August as energy prices rose. According to early estimates released Thursday by Europe’s statistics office, the average cost of goods and services in the 20 nations that use the euro increased by 5.3% this month compared to a year ago.
The yearly rate of inflation was the same as it was in July.
From 5.5% in July to 5.3% in August, core inflation, which includes volatile food and energy prices, decreased.
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The leading causes of inflation in August were services, food, alcohol, and tobacco. However, these prices increased at a slower annual rate than in July. Energy costs climbed by 3.2% in August compared to July, which slowed the yearly pace of decline from 6.1% in July to 3.3% in August.
“The increase in energy prices amid rising oil prices in the last few weeks was an important driver of the apparent stagnation of the headline print this month,” Marc de Muizon, senior economist at Deutsche Bank, wrote in a research note.
Overall inflation was predicted to slow down to 5.1% by economists surveyed by Reuters, which is still much higher than the 2% rate the European Central Bank (ECB) targets. Despite mounting signs that the European economy is in danger of a recession, persistent inflation may put more pressure on the central bank to hike interest rates once again when it meets next month, possibly to a new record-high level.
The benchmark borrowing rate in the euro area reached 3.75% in July after the ECB raised rates for the ninth time.
Since then, poll results have drawn attention to the possibility that Europe’s largest economy, Germany, may return to recession. Purchasing Managers’ Index statistics released this week show that it experienced the sharpest fall in business activity in more than three years this month.
The ECB may be heartened by indications that service pricing was slightly weaker than anticipated, according to de Muizon of Deutsche Bank. As persistently high wage inflation will be used to offset the decreasing [economic] growth momentum, the primary uncertainty in the future will be how quickly and how far services inflation rates decline, he stated.
