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EMU CommentEurozone inflation stuck at 1%

  1. Eurozone inflation stuck at 1%
  2. Suppressed inflation in France, Germany and, particularly, Italy
  3. ECB set to push for fresh stimulus amid internal disagreements
Eurozone inflation stuck at 1%
The August flash annual consumer price index was 1% y-o-y and in line with expectations, compared to 1.1% the previous month. Meanwhile, core inflation was slightly lower than expectations at 0.9% and unchanged from the month before. As such, the broad trajectory of sluggish inflation continues as medium-term inflation remains stuck below 1%, increasing pressure on the ECB to act.
Suppressed inflation in France, Germany and, particularly, Italy
The eurozone composite release is broadly reflected across the three largest euro economies. Yesterday's release of German inflation showed an unexpected weakening in August, with consumer prices growing 1% from a year earlier compared to 1.1% the previous month. With an ongoing manufacturing-led downturn, pressure is growing on the government to deliver more fiscal stimulus to head off a recession. In France, today's August figures showed headline inflation falling to 1.2% y-o-y compared to 1.3% the month before, to a large extent due to lower contributions from manufactured products. Finally, August preliminary data show headline inflation expected at 0.5%, up from 0.3% the month before.
ECB set to push for fresh stimulus amid internal disagreements
Ahead of next month's decision meeting, minutes from the July ECB meetings confirmed previously communicated concerns over the inflation outlook and the need for decisive action in case the outlook does not improve. However, whereas Governing Council members such as Mario Draghi and Olli Rehn have publicly pointed to the need for a broader stimulus package, including QE, other members such as Jens Weidmann, Klaas Knot, and Sabine Lautenschläger have expressed more hawkish views. Amidst the debate over details regarding any renewed bond purchasing programmes, we see ongoing disagreements about the role of QE, whether it should be used more as a measure of last resort or as a more preemptive, and possibly more permanent, tool of monetary policy. We continue to expect a 10bp cut in September, with the timing and details of QE remaining uncertain and more likely to be added on sequentially later in Q4.

Eurozone inflation stable in August

Source: Macrobond

 Suppressed inflation across the eurozone, particularly in Italy

Source: Macrobond


 Erik Meyersson

Erik Meyersson

Senior Economist


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