Euro area inflation expected to reach 3%, highest in 10 years

BRUSSELS: The annual inflation rate of the euro area is expected to reach 3 per cent in August, the highest in 10 years, according to the flash estimate published on Tuesday by Eurostat, the statistical agency of the European Union (EU).

The inflation is still driven by the energy sector, with prices recording an increase of 15.4 per cent compared to last year.

The yearly inflation for non-energy industrial goods is expected to be at 2.7 per cent in August, a sharp increase compared to July, when it was at 0.7 per cent.

Estonia, Lithuania and Belgium are expected to record the highest yearly inflation in August, with 5 per cent, 4.9 per cent and 4.7 per cent, respectively.

Countries with the lowest inflation rate for August include Malta, Greece and Portugal, with 0.3 per cent, 1.2 per cent and 1.3 per cent, respectively.

This is the highest inflation recorded in the eurozone in 10 years, according to Bert Colijn, senior economist for the eurozone at ING. It is also well above the limit of 2 per cent that the European Central Bank (ECB) has set to keep prices in check in the eurozone.

However, the ECB should still remain caution and not act too fast on what could be only a temporary surge, according to Colijn.

“Despite the jump in core inflation and the further rise in headline inflation, this is not set to sway the ECB towards a more hawkish stance ahead of the September meeting next week,” said Colijn.

But an abnormal pressure due to passthrough of higher input and transport prices, as well as a potential jump in prices in the service sector once it fully reopens, could still drive the inflation higher, according to Colijn.

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