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Eurozone inflation falls to 2.2 percent in August, markets expect further ECB rate cut

2024-08-30 12:55:53Kosova&Bota SHKRUAR NGA REDAKSIA VOX

Eurozone inflation falls to 2.2 percent in August, markets expect further ECB

Markets expect further ECB rate cuts as price pressures ease.

Eurozone inflation fell to a three-year low of 2.2% in August, bolstering expectations that the European Central Bank will cut interest rates next month.

The preliminary figure was in line with the 2.2% forecast in a Reuters poll and below last month's rate of 2.6%.

"The inflation environment is slowly getting better," said Bert Colijn, Eurozone economist at ING, referring to progress in bringing the headline inflation rate closer to the ECB's 2% target.

The data from Eurostat came after Germany and Spain this week reported sharper-than-expected declines in August.

France also reported a fall in inflation to 2.2% - but this figure was higher than expected, which some economists attributed to price pressures due to the Paris Olympics.

Markets are anticipating a quarter-point cut in the ECB's key interest rate, to 3.5%, at the September 12 meeting, as inflation approaches the bank's 2% target.

The ECB already cut rates by a quarter of a point in June, while the Bank of England did so this month.

Despite falling energy prices, a rise in Eurozone utility inflation to 4.2% could add to caution among rate-setters, given rising wages in Germany and elsewhere.

Following the release of the figures, the yield on one-year German bonds – which move inversely with prices and reflect expectations of Eurozone interest rates – fell 0.01 percentage point to 2.35%. The euro remained unchanged during the day at $1.1076.

The US Federal Reserve is also expected to cut its key rate for the first time in more than four years in September.

ECB chief economist Philip Lane signaled further interest rate cuts this month. He warned that keeping interest rates "too high for too long would deliver chronic inflation below the medium-term objective", while warning that a return to the ECB's 2% target was not yet certain.

Isabel Schnabel, a member of the ECB's executive board, indicated she was also open to cuts, but said the central bank "must proceed gradually and cautiously" in lowering rates.

Separate figures released on Friday showed the Eurozone labor market remained strong, with the seasonally adjusted unemployment rate falling marginally to 6.4% in July from 6.5% a month earlier. / FT


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