The rise in inflation in the euro zone puts the ECB under pressure for a big hike

A further rise in euro-zone inflation has given dovish central bankers the case for a more aggressive rate hike next week, although price pressures have eased slightly here.

Rice in the 19-member zone rose a record 9.1 percent year-on-year in August, with markets now pricing in a 0.75 percentage point rate hike to 1.25 percentage points on Sept. 8.

At least six members of the European Central Bank (ECB) have called for bigger interest rate hikes than July’s 0.5 percent hike, with Austria’s central bank governor Robert Holzmann saying yesterday there was “no reason, any kind of leniency” to the ECB’s position to show.

Irish annual inflation slowed to 8.9% in August from 9.6% in July, likely a temporary pause before energy prices push it into double digits later this month.

Prices remained stable month-on-month, rising 0.1 percent compared to July.

A drop in gasoline prices in August likely played a role in the slowdown, Goodbody chief economist Dermot O’Leary said, but it’s unlikely to last.

“However, the massive further increase in wholesale gas prices in August means that there will be further price hikes for retail gas and electricity over the next few months, thereby driving up inflation.”

CSO statistician Anthony Dawson said Ireland’s energy costs were down 2.8 per cent for the month but up 39.9 per cent compared to August 2021.

Irish manufacturers say price hikes and economic uncertainty are making shoppers buying as orders and production fell again in August.

AIB’s Manufacturing Purchasing Managers’ Index came in at 51.1 for the month, down from 51.8 in July and the slowest growth rate in nearly two years.

August marked the fifth consecutive month of declines, the longest since mid-2019.

While input prices fell to a 12-month low and output prices eased at the same time, they are still above average.

AIB Chief Economist Oliver Mangan said that “while inflationary pressures remain strong, there are signs that they are easing”.

But in the eurozone, a larger-than-expected pick-up in commodity inflation, where prices rose 5 percent in August after rising 4.5 percent in July, “stokes concerns about the second-round effects of the input cost shock, which are lasting longer,” said ING Senior Economist Bert Colin.

Annual energy price inflation slowed slightly to 38.3 percent from 39.6 percent in July. The EU will discuss emergency market interventions, including price caps, at a ministerial meeting next week.

Service inflation in the euro zone rose slightly to 3.8 percent. The rise in inflation in the euro zone puts the ECB under pressure for a big hike

Fry Electronics Team

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