Euro area – inflation flirts with the 2%-mark

Inflation rate falls significantly in August, ...

According to preliminary data from Eurostat, the inflation rate fell to 2.2% in August (from 2.6% in July). Inflation thus met the expectations of the economists surveyed in advance (Table 1). This significant decline is primarily due to lower energy inflation (from 1.2% in July to -3.0). The core inflation rate, excluding the often highly volatile prices of energy and food, fell only slightly to 2.8%, in line with expectations. It therefore remains well above the ECB's target of 2%. As the previous year's rate for the important services component remains stubbornly at the 4% mark and even rose to 4.2% in August, this is unlikely to change in the coming months.

... and could dip below 2% in September

The inflation rate will also be significantly influenced by the movement of energy prices in the coming months, partly due to their strong movements in the past year. For example, the rate of energy inflation fell noticeably this month not only because energy prices fell compared to the previous month. Rather, it was also because prices had risen significantly in August 2023, which now dropped out of the year-on-year comparison. As energy prices continued to rise noticeably in September last year, the rate of energy inflation will continue to fall in the coming month, even if current energy prices stabilize. The overall inflation rate could therefore even slip below the 2%-mark in September.

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