Energy prices are falling: Price increases in the eurozone are weakest in three years

Energy prices are falling
Price increase in the eurozone weakest in three years

30.08.2024, 15:38

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The increase in the cost of living in the euro area is once again slowing down. Inflation was last higher in July 2021. Energy prices once again played a major role. In contrast, services and food prices became more expensive.

In the euro area, prices rose in August at the slowest pace in three years. Specifically, the inflation rate was 2.2 percent. This was the lower year-on-year increase in consumer prices since July 2021, according to the EU statistics office Eurostat. The main reason is the sharp drop in energy prices in the 20 euro countries. Consumer prices for food, tobacco and alcohol, and especially for services, on the other hand, continued to rise at an above-average rate.

Inflation was highest in Belgium at 4.5 percent, and lowest in the Baltic states of Latvia and Lithuania at under one percent. Eurostat reported inflation for Germany at 2 percent. The Federal Statistical Office had reported 1.9 percent the day before. The difference is due to different calculation methods. Eurostat uses the so-called harmonized consumer price index, which enables a comparison of the euro countries.

The European Central Bank (ECB) is aiming for inflation of two percent. In July, consumer prices in the euro area rose by 2.6 percent year-on-year, after 2.5 percent in June.

Core inflation above target

ECB Executive Board member Isabel Schnabel welcomed the falling inflation rate. However, the German economist was cautious about a possible interest rate cut in September. Interest rate cuts must be made “gradually and cautiously,” she said in a speech in the Estonian capital Tallinn. This shows above all the “ongoing price pressure in the services sector.”

According to Eurostat, consumer prices rose the most in this area, at 4.2 percent in August. The so-called core inflation – excluding the frequently fluctuating energy and food prices – is also still higher than desired in the euro area at 2.8 percent.

At the beginning of June, the ECB lowered its key interest rates for the first time in almost five years. The central key interest rate at which commercial banks borrow money from the ECB has been 4.25 percent since then. The deposit rate relevant for savers is 3.75 percent. The weakened inflation could now pave the way for a further reduction in the key interest rate. The responsible committee of the Eurozone central bank will discuss the further monetary policy course on September 13.

EU labour market very robust

According to Eurostat, unemployment remained at a relatively low level. In July, the rate for the entire currency area fell again to an all-time low of 6.4 percent, adjusted for seasonal factors. In the eurozone countries, almost eleven million people were unemployed. In the entire EU, with its population of over 450 million, the figure was just under 13.2 million.

Eurostat puts the unemployment rate for Germany in July at 3.4 percent, well below average. Only Poland, Malta and Slovenia have lower figures in the EU, while the unemployment figures are significantly higher in Spain, Greece and the Baltic states.

The Federal Employment Agency, on the other hand, is expecting a significantly higher rate of 6.0 percent for July and an increase to 6.1 percent for August. As with inflation, a different calculation method is used here.