Inflation in Europe stuck at 5.3% in August as energy prices rise

By Olesya Dmitracova and Mark Thompson, CNN

London (CNN) — Consumer prices in the 20 countries that use the euro rose 5.3% on average this month compared with a year ago, preliminary estimates by Europe’s statistics office showed Thursday.

That was unchanged from the annual rate of inflation in July.

Core inflation, which excludes volatile food and energy prices, eased to 5.3%, from 5.5% in July.

Food, alcohol, tobacco and services were the biggest drivers of inflation in August, although those prices rose at a slower annual pace than the previous month. Compared with July, energy prices increased by 3.2%, tempering the annual rate of decline to 3.3% in August from 6.1% the previous month.

“The increase in energy prices amid rising oil prices in the last few weeks was an important driver of the apparent stagnation of the headline print this month,” Marc de Muizon, senior economist at Deutsche Bank, said in a research note.

Economists polled by Reuters had expected overall inflation to slow down to 5.1%, still well above the 2% rate targeted by the European Central Bank (ECB).

Persistent inflation could increase pressure on the central bank to raise interest rates again, to a new record-high, when it meets next month, despite growing evidence that the European economy is at risk of sliding into a recession.

The ECB in July raised rates for the ninth consecutive time, taking the benchmark borrowing cost in the euro area to 3.75%.

Since then, survey data has highlighted the risk that Germany’s economy — the biggest in Europe — may already be falling back into recession. It suffered the steepest decline in business activity for more than three years this month, according to Purchasing Managers’ Index data published last week.

Deutsche Bank’s de Muizon said the ECB may be encouraged by signs that the prices of services were a little weaker than expected.

“The main uncertainty moving forward will be how fast and far services inflation rates drop as the weakening [economic] growth momentum will be counteracted by persistently elevated wage inflation,” he wrote.

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