“Rate not falling as hoped”
Eurozone inflation as low as early 2022
7/31/2023 1:19 p.m
The trend continues. In the euro zone, too, consumer prices are slowly but surely approaching the inflation target of 2 percent. But economists still see a lot of work ahead of the ECB. One even speaks of a “negative inflation surprise” despite falling prices.
Inflation in the euro countries has weakened for the second month in a row. In July, inflation was 5.3 percent year-on-year, according to statistics agency Eurostat. This is the lowest inflation rate in the euro zone since the beginning of 2022. It was 5.5 percent in June and 6.1 percent in May.
The main reason for the slowdown was falling energy prices, which fell by 6.1 percent. The costs of food, alcohol and tobacco, on the other hand, remained high: they rose by 10.8 percent in July, after 11.6 percent in June.
Core inflation was 5.5 percent in July, according to Eurostat. This does not include strongly fluctuating prices for energy, food, alcohol and tobacco. According to many economists, it represents the inflation trend better than the overall rate and is therefore an important criterion for the European Central Bank, whose target is two percent.
Belgium as a role model, Slovakia at the bottom
In Germany, consumer prices rose by 6.2 percent in July. The inflation rate in July was lowest in Belgium at 1.6 percent. It was highest in Slovakia at 10.2 percent.
In the past year, inflation was at times in the double digits due to the Russian attack on Ukraine. The European Central Bank (ECB) is resisting the development with sharp interest rate hikes; it has raised its key interest rates by a total of 4.25 percentage points since the summer of 2022. However, the further course is uncertain.
“Negative Surprise”
According to the experts, the central bank cannot rest on its laurels. “The role of the ECB is now to give inflation the last push so that it falls back to the two percent target really quickly,” comments Fritzi Köhler-Geib, chief economist at KfW, on the Eurostat figures. “It is still difficult to say whether it has already done enough for this due to the slow effect of monetary policy on prices and many other unknowns.” Because currently falling energy prices and dissolving supply bottlenecks are responsible for the falling prices.
The chief economist from Hauck Aufhäuser Lampe is clearer: “This is a negative inflation surprise, especially the core rate is not falling as hoped,” said Alexander Krüger. “The ECB must not rely on a further fall in the inflation rate. There could be new unpleasant surprises, especially when it comes to wages.”