Stubborn Inflation Proves Difficult to Tame in Europe
Eurozone inflation remains stubbornly high even as other signs point to a slowing economy, presenting the European Central Bank with the tricky task of cooling already anemic demand without pushing the region into a prolonged recession. The surge in energy and food prices that followed Russia’s invasion of Ukraine has left the eurozone with higher inflation and weaker growth than in the U.S. When ECB policy makers raised the bank’s key rate last month, they signaled that they might pause at their next meeting, which is scheduled for Sept.
14. Since then, there have been signs that the economy is weaker than they had anticipated, but inflation has been stronger. The European Union’s statistics agency Thursday said consumer prices were 5.3% higher in August than a year earlier, unchanged from July.
That is well below the 10.6% peak reached in October 2022, but substantially above the ECB’s 2% target. Economists had expected to see a decline in the inflation rate, which rose in both France and Spain, two of the eurozone’s largest members. The surprisingly rapid rise in prices increases the likelihood that the ECB will raise its key rate for a 10th time next month.
“Should we judge that the policy stance is inconsistent with a timely return of inflation to our 2% target, a further increase in interest rates would be warranted," said Isabel Schnabel, a member of the ECB’s executive board, on Thursday. The inflation surprise was largely due to energy prices, which had declined in recent months but rose in August. The core rate of inflation, which excludes volatile items such as energy and food, fell to 5.3% in August from 5.5% in July.
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