Eurozone inflation rose to a 10-year high in August and is likely to continue to rise, challenging the European Central Bank’s moderate view of inflation and its stability beyond what it considers to be a rapid rise.
Consumer prices in the 19 eurozone member countries rose 3% this month, compared to a 2.2% increase in July, which was higher than expected for the 2.7% increase and the inflation rate was 2.% from the ECB.
The European Union’s Statistics Office (Eurostat) has pushed for an increase in energy costs, but food prices have also risen, and there has been an unusually large increase in the price of industrial goods.
Inflation in Germany, the eurozone’s largest economy and the ECP’s biggest critic, is expected to approach 5% in the coming months, and the bank is under increasing pressure to tackle the problem. Headline inflation, excluding volatile food and fuel prices, rose to 1.6 per cent in August from 1.9 per cent in the previous month, excluding alcoholic beverages and tobacco. The “European Central” meets on September 9th and is expected to make a decision on the pace of bond purchases over the next three months.
The eurozone economic sentiment fell from a record high in July than expected in August due to a sharp drop in confidence in France and the Netherlands.
The European Commission’s economic sentiment index, released on Monday, fell to 117.5 points from a high of 119.0 in July. Confidence in all major sectors declined, with the industrial sector falling from 14.5 points to 13.7, services from 18.9 points to 16.8 and consumer among -4.3 points to -5.3.
Consumer inflation expectations rose to 31.1 points from 30.0 points in August and July, but are at an all-time low of 38.7 points in 2001.
Data on Monday showed that inflation in Germany was higher than wage growth in the second quarter as price rises due to economic recovery and supply barriers in the manufacturing sector weakened consumer purchasing power.
France recorded the biggest drop in economic sentiment by 4.5 points, followed by the Netherlands. Depression was also weak in Italy and Spain. In Germany, the largest economy in the eurozone, sentiment fell 0.3%.