Eurozone annual inflation dropped to 2.2% in August 2024, the lowest in over three years, raising speculation about potential interest rate cuts by the European Central Bank (ECB). Core inflation, excluding volatile components, saw a slight decline from 2.9% to 2.8% annually, driven by persistent services costs. The decline was primarily attributed to a 3% drop in energy prices and favorable base effects, with services prices rising by 4.2% year-over-year.
Isabel Schnabel, a member of the ECB’s Executive Board, cautioned against hasty rate cuts, emphasizing that the headline inflation rate did not fully reflect the challenges faced by monetary policy. Despite the decline in overall inflation, domestic inflation remained high at 4.4%, largely due to continued price pressures in the services sector.
In August, Germany’s inflation fell to 2% annually, below market expectations, contributing to cooling inflation in the Eurozone. On the other hand, Belgium experienced a surge in inflationary pressures, with a notable increase in its harmonized inflation rate.
Following the release of inflation data, the euro remained stable against the dollar, while yields on sovereign bonds showed minimal changes. European stocks continued to rise, with the Euro Stoxx 50 gaining 0.6% and individual indices in France, Italy, and Germany also seeing increases.
Overall, the Eurozone’s inflation dynamics and market reactions indicate a complex economic landscape, with potential implications for future monetary policy decisions by the ECB.
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