2024-08-30 12:30:44
A woman takes a selfie with the Eiffel Tower in the background on Rue Surcourf in Paris, July 23, 2024, ahead of the opening of the 2024 Paris Olympic Games.
Mauro Pimentel | AFP | Getty Images
Euro zone inflation fell to a three-year low of 2.2% in August, preliminary data from the European Union’s statistics office showed on Friday, reinforcing expectations that the European Central Bank will cut interest rates in September.
The figure was down from 2.6% in July and in line with forecasts of economists polled by Reuters.
Core inflation, which excludes volatile components such as energy, food, alcohol and tobacco, fell to 2.8% in August from 2.9% in July, also in line with a Reuters poll.
The euro continued to fall against the pound after the data, falling 0.1% to 0.8408 pence. The euro rose 0.04% against the dollar to $1.1083 as investors prepared for the Federal Reserve to cut interest rates in September, the first step of the Fed’s monetary easing this cycle.
Earlier, Germany, the euro zone’s largest economy, reported a bigger-than-expected rise in prices in November, falling to 2% according to the euro zone’s coordinated standards.
Economists at ING expect core eurozone inflation to remain above 2.5% for the rest of the year due to the stickiness of goods and services.
Markets have fully priced in another 25 basis point rate cut from the ECB in September (after its first cut in June) and another 25 basis point cut before the end of the year.
Kyle Chapman, foreign exchange market analyst at Ballinger Group, said that despite this, some details contained in the report still worry ECB policymakers, especially the 4.2% service sector inflation rate.
“The positive news was purely due to energy prices and it masked the fact that there was little real progress on the underlying pressures,” Chapman said in a note.
“Services inflation is now at its highest level since October last year and has been hovering around 4% for nearly a year, having been moving in the wrong direction since the spring.”
Before the latest data was released, Ed Smith, co-chief investment officer at Rathbones Asset Management, told CNBC’s “Squawk Box Europe” on Friday that the ECB will cut interest rates further, noting that ECB President Christine Lagarde is focused on wage inflation.
“Negotiating wages is a big deal in the eurozone. [they] About 80% of the workforce [who] Negotiated wage increases for them. Negotiated wages fell sharply across the euro area in the second quarter, and other indicators also fell, such as Indeed.com The ECB’s telephone survey of businesses also showed a fall in wage intentions.”
“But there is some stickiness, the latest [purchasing managers’ index] The data, the services surveys, show that there is a bit of stickiness in the price component of it,” he added, noting that this would make some ECB voting members cautious.
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