Euro Area: Inflation came in close to 10-year high in August
Harmonized inflation came in at 3.0% in July, above July’s 2.2% and marking the highest print since November 2011. Inflation therefore moved further above the European Central Bank’s target rate of 2.0%. August’s result was due to sharper increases in prices for energy, food, alcohol and tobacco, services and non-energy industrial goods.
On a monthly basis, harmonized prices rose 0.35% in August, contrasting July’s 0.09% decrease. Core inflation, which excludes volatile energy and unprocessed foods prices, jumped to 1.6% in August from July’s 0.9%, the highest print since March 2013.
Commenting on the short-term outlook for inflation, Bert Colijn, senior economist at ING, stated:
“The one big question mark is around the passthrough of the higher input and transport prices for goods, which has been moderate so far but the price pressures have become abnormal in recent months. The other is whether service sector reopenings will still cause price jumps like we saw for hairdressers after the first wave. We’re starting to see some evidence of that in restaurants and hotels, but not yet in package holidays. There is some evidence that this effect will start to become more prominent towards the end of the year, so hold tight: inflation has the potential to go higher from here.”