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Core inflation fell in the euro zone, exacerbating the dilemma facing the European Central Bank over whether to continue with the largest set of interest rate increases since the creation of the single currency.
The European Union’s statistical office said on Thursday that overall inflation in the region was unchanged at 5.3 percent in the year to August, but noted that prices excluding energy and food had slowed.
The figures come ahead of the European Central Bank’s September 14 meeting, when it faces one of its most balanced decisions in years: whether to risk pushing the eurozone economy into a painful recession by raising interest rates further, or allowing inflation to become entrenched higher. Much more than level 2. Target percent.
“There is a lot to pick and choose for both hawks and doves in today’s inflation data,” said Angel Talavera, head of European economics at consultancy Oxford Economics.
The headline inflation rate exceeded expectations of 5.1 percent in a Reuters poll of economists.
But core inflation, which excludes energy and food and which the ECB closely monitors as a measure of underlying price pressures, fell in line with expectations to 5.3 percent, down from 5.5 percent in July.
Investors reacted by reducing bets on a tenth consecutive ECB interest rate hike, as the euro continued its decline against the dollar, falling by 0.5 percent. The yield on two-year German interest rate-sensitive bonds fell by 5 basis points to 3.03 percent. Bond yields fall as their prices rise.
As the European Central Bank approaches the end of its interest rate hike cycle, markets have become increasingly sensitive to small shifts in economic data, highlighting how close the September decision is.
The latest figures mean that inflation has remained above the European Central Bank’s target for 26 consecutive months, and not below that level in any of the euro zone’s 20 member states.
In an attempt to slow economic activity and calm price pressures, the European Central Bank has raised its benchmark deposit interest rate from minus 0.5 percent to 3.75 percent since the middle of last year.
But he left the door open to a possible pause at its next meeting, which some policymakers say risks pushing the economy into an unnecessarily painful recession.
Isabel Schnabel, a member of the Executive Board of the European Central Bank, said… letter Earlier on Thursday, the latest data “suggests growth prospects are weaker than expected” in the central bank’s upbeat June forecast, while the euro zone “may not be on the brink of a deep or prolonged recession.”
The European Central Bank had expected growth of 0.9 percent this year – a more optimistic forecast than most economists.
Until recently, Schnabel was one of the most “hawkish” ECB Governing Council members calling for another rise in borrowing costs, and also acknowledged there was a “risk” that the effects of previous interest rate hikes would feed back “more strongly” in the coming quarters.
But it also said the recent decline in inflation-adjusted overnight borrowing rates to levels last seen in February could “conflict” with efforts to reduce price pressures.
Inflation in the euro zone fell more slowly than in the US, where it reached 3.2 per cent in July, but faster than in the UK, where the latest reading was 6.8 per cent.
Energy prices fell by 3.3 percent year-on-year through August, a more modest decline than in the previous two months. This compensation in food, alcohol and tobacco inflation decreases to 9.8 percent and in industrial goods inflation to 4.8 percent. Services inflation fell from the highest level recorded last month to 5.5 percent.
sporadic data The Eurostat report showed that the number of unemployed people in the euro zone rose by 73,000 people in July compared to June, but the unemployment rate remained at a record low of 6.4 percent.
Adding to signs of weak economic activity, German retail sales fell more than expected in July, falling 0.8 percent from the previous month, according to the Federal Statistics Agency.