Annual inflation in the euro zone was the same in August as in July, defying economists’ expectations of a slowdown, as rising prices of unprocessed food and services offset some of the downward pull from cheaper energy.
In its first official estimate, European Union statistics office Eurostat said euro zone prices rose 0.2 per cent year-on-year this month, the same as in July and more than the 0.1 per cent forecast in a Reuters poll.
"Stable euro zone consumer price inflation in August eases pressure on the European Central Bank to consider increasing its stimulative efforts at its September policy meeting on Thursday, such as by front-loading more its QE programme," IHS Global Insight economist Howard Archer said.
He expected no action from the ECB despite fears about China's economy that could affect growth prospects in Europe but said ECB President Mario Draghi might stress that the ECB is ready to act if inflation dips further or fails to pick up.
Cheaper energy was the biggest factor lowering the overall index, with energy prices 7.1 per cent lower than in August 2014.
Oil prices have fallen from above $60 a barrel in early July to around $43 last week and economists said the effects of that fall may not be fully visible yet.
“It may be that the latest plunge in commodity and energy prices is not yet fully reflected in inflation data,” said Carsten Brzeski, economist at ING.
Unprocessed food had the biggest upward impact on inflation, with prices rising rose 2.3 per cent in annual terms.
Excluding both volatile energy and unprocessed food prices - a measure the ECB calls core inflation - consumer prices rose 0.9 per cent year-on-year, the same as in July.
“Given the rapid change in the global economic climate, we do not think this figure will affect ECB policy,” said Dominique Barbet, economist at BNP Paribas.
“On the contrary, that will help the central bank to buy time in this week’s council meeting.
“The ECB needs to wait for dust to settle in order to better read the impact of recent financial market volatility onto the euro zone economy,” he said.
Reuters
