Eurozone Inflation Near 10-Year High

Eurozone inflation accelerated more-than-expected to a near 10-year high in August, flash data from Eurostat showed on Tuesday.

Inflation rose to 3 percent in August from 2.2 percent in July. This was the highest since November 2011 and also exceeded the European Central Bank’s 2 percent target and economists’ forecast of 2.7 percent.

Core inflation that excludes energy, food, alcohol and tobacco, advanced to 1.6 percent from 0.7 percent in July. The rate was forecast to rise to 1.5 percent.

The increase in inflation was primarily due to temporary forces that should fade next year, leaving headline and core inflation well below 2 percent by the end of 2022, Jack Allen-Reynolds, an economist at Capital Economics, said.

The economist said the headline rate will drop to about 2 percent in January then trend down throughout the year to end 2022 at around 1 percent.

Despite the jump in core inflation and the further rise in headline inflation, this is not set to sway the ECB towards a more hawkish stance ahead of the September meeting next week, Bert Colijn, an ING economist said.

The macro projections presented at next week’s meeting will likely not have seen too much extra upward pressure yet, the economist added.

On a monthly basis, the harmonized index of consumer prices gained 0.4 percent in August, Eurostat data showed. Final data is due on September 17.

Among components of the harmonized index of consumer prices, energy showed the highest annual rate of 15.4 percent, followed by non-energy industrial goods with 2.7 percent increase.

Food, alcohol and tobacco prices gained 2.0 percent and services cost advanced 1.1 percent.

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