Eurozone Inflation Hits Three-Year Low at 2.2%, Fueling ECB Rate Cut Speculation

The Eurozone’s inflation rate has plummeted to 2.2% in August 2024, marking its lowest level in three years, according to data released by Eurostat. This significant decrease from 2.6% in July is primarily attributed to a 3% decline in energy prices over the past year.The core inflation rate, which excludes volatile components such as energy and food prices, also eased slightly to 2.8% from 2.9% in July. This development brings the inflation rate closer to the European Central Bank’s (ECB) medium-term target of 2%.However, service sector inflation rose to 4.2% from 4.0% in July, partly due to the impact of the Paris Olympics. This increase in service prices remains a concern for ECB policymakers, particularly given the rapid wage growth in countries like Germany.The unemployment rate in the Eurozone has also fallen to a record low of 6.4% in July, down from 6.5% in June, further complicating the ECB’s policy decisions.These developments have heightened expectations for potential interest rate cuts by the ECB. Many economists now anticipate a 25 basis point cut at the bank’s next meeting on September 12. However, ECB board member Isabel Schnabel has cautioned that policy should proceed ‘gradually and cautiously’.The inflation rates vary across Eurozone countries, with Germany and France both registering rates of 1.9%, while Belgium recorded the highest at 4.5%. This diversity in inflation rates across the bloc adds another layer of complexity to the ECB’s decision-making process.

Key points

• Eurozone inflation rate dropped to 2.

2% in August 2024, the lowest in three years.

• The decrease is mainly due to a 3% decline in energy prices.
• Core inflation eased slightly to 2.

8%, approaching the ECB’s 2% target.

• Service sector inflation rose to 4.

2%, partly due to the Paris Olympics.

• Unemployment in the Eurozone reached a record low of 6.

4%.

• Economists expect the ECB to consider interest rate cuts at its September 12 meeting.

Contradictions👾While overall inflation has decreased significantly, service sector inflation has risen, presenting a mixed picture for the ECB to consider in its policy decisions.