Euro Area: Inflation dips in August

Euro Area Inflation August 2023

Euro Area: Inflation dips in August

Harmonized inflation remained dipped to 5.2% in August from 5.2% in September. The print represents the lowest rate since the start of 2022. That said, inflation remained stuck above the European Central Bank’s target rate of 2.0%.

August saw weaker increases in prices for non-energy industrial goods, services and food, and alcohol and tobacco. On the flip side, prices for energy declined at a softer pace. Meanwhile, the annual rate of core inflation—which excludes volatile energy and unprocessed food prices—declined to 6.2% in August from July’s 6.5%.

On a monthly basis, harmonized consumer inflation rose 0.54% in August, swinging from July’s 0.09% drop.

Looking ahead, our panelists expect inflation to ease to around 3% by Q1 2024 on a tougher base effect and the ECB’s recent rate hikes. However, an upside risk is posed by sticky core inflation and possible spikes in energy prices, especially for European gas. Core inflation is being fueled by services inflation, which itself is impacted by a recovering tourism sector.

Commenting on the outlook with a focus on Germany, Bert Colijn, senior economist at ING, stated:

“Looking ahead, more declines in inflation are in the making. In Germany, we expect a significant drop next month as base effects from government support drop from the data. Surveys also point to a sizable disinflationary effect for goods prices, while services inflation is set to fall more slowly thanks to higher wage costs. Indeed, wage growth is still trending above a level consistent with 2% inflation.”

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