Annual eurozone inflation moderates in August with slump in economic sentiment

LONDON (ICIS)–Annual eurozone inflation stabilised in August, according to flash data released by the EU’s statistical agency, Eurostat, on Thursday.

Inflation for the single-currency bloc remained at 5.3%, level with a month prior, as losses were stemmed in the energy sector and other segments made modest movements compared with July.

Food, alcohol, and tobacco accounted for the highest rate at 9.8%, compared with 10.8% in the previous month. Services moderated, settling at 5.5%, down from 5.6% and non-energy industrial goods edged down to 4.8% from 5.0% in July.

Energy inflation remained negative at -3.3%, but this was less pronounced than July, when levels recorded a 6.1% drop.

Trade in the chemicals industry had slowed over the third quarter, which, despite following traditional seasonal expectations, was more significant than usual as a result of weak demand.

Inflation spiralled following the Russian invasion of Ukraine in February 2022, putting significant pressure on gas costs, but high storage levels and a mild winter helped prices soften (although they did not return to lower levels).

While prices have fallen, this has weighed on economic sentiment in the EU, according to data from the EU Commission, as industrial sentiment has fallen for the sixth consecutive month and consumer confidence fell for the first time since September 2022.

To combat this, the European Central Bank (ECB) has implemented consecutive hikes across key interest rates to guide inflation towards its 2.0% target.

In doing this, the bank has capped consumer purchasing power by eroding disposable income, as households have to prioritise key expenses, which has helped weigh down demand.

Further interest rate hikes from the ECB could be avoided as inflation has moderated, although it remains above the bank’s target.

Thumbnail picture: a production line in Germany. Source:
Friedemann Vogel/EPA-EFE/Shutterstock