Frédérique Cerisier
BNP Paribas
Inflation eased further this summer. The harmonized inflation rate fell to 0.3% in the Eurozone in August. This is a new record low in the current cycle. In Jackson Hole last week, the President of the ECB acknowledged that “inflation expectations exhibited significant declines at all horizons“.
Inflation eased further this summer. According to Eurostat’s flash estimate released this morning, the harmonized inflation rate fell to 0.3% in the Eurozone in August, down 0.1pp from July and 0.2pp from June. This is a new record low in the current cycle, and the lowest level since the summer 2009, when the Eurozone inflation rate had temporarily fallen into negative territory due to the collapse in energy prices.
This time also, energy prices play a large part in the deceleration in the inflation rate. According to Eurostat, their year-on-year growth rate fell to -2.0% in August after -1.0% in July, being the main driver behind this month’s decrease in headline inflation. By contrast, the core inflation rate rose, very modestly, to 0.9%, due to a rebound in the prices of industrial goods (from 0% in July to 0.3% in August). But this is indeed the weakness in the core inflation rate which is a major source of concern. It has roughly stabilised just below 1% since late 2013, the slowest trend since the creation of the EMU.
Among the largest countries, Italy has now joined Spain in the group of countries where headline inflation is negative, falling to -0.2% and -0.5% respectively. The gap with the German inflation rate, stable at 0.8%, is rapidly increasing.
As outlined repeatedly by Mario Draghi, too low inflation rates for too long a period of time have to be avoided. In Jackson Hole last week, the President of the ECB acknowledged that “inflation expectations exhibited significant declines at all horizons“, raising expectations for further policy measures from the Central Bank. But the Governing Council may also resist acting, wanting to assess effects on credit growth of the incoming TLTROs, the first of which will take place in September. The next Governing Council meeting will take place next week in Frankfurt.
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