The preliminary estimate of August’s inflation rate for the Eurozone has been revised downward to 5.2%, from the initial flash estimate of 5.3% last month. This adjustment is due to lower inflation rates in Croatia, Austria, and Finland than previously estimated.
It represents a slight deceleration compared to July’s rate of 5.3%. The European Central Bank responded to these concerns by raising all three of its main interest rates last week, as it feared it wouldn’t be able to bring price hikes down to its target of 2% by 2025.
Across the broader 27-member EU, the inflation rate in August was 5.9%, a decline from July’s 6.1%.
In Ireland, the inflation rate increased to 4.9%, up from 4.6% in July. However, according to the Irish measure, which includes mortgage interest payments, the inflation rate was 6.3%.
Eurostat reported that services had the largest contribution to higher prices in the eurozone in August, followed by food. On the other hand, energy prices declined compared to the previous year, dampening the overall increase in prices.
Economists noted that inflation in the services sector tends to be more resistant and challenging to address compared to goods price inflation. This is largely due to higher wages impacting prices in the sector, as well as rising rents driving up the services rate in Ireland.
The countries with the lowest annual inflation rates were Denmark (2.3%), Spain, and Belgium (both 2.4%). Conversely, Hungary (14.2%), the Czech Republic (10.1%), and Slovakia (9.6%) had the highest annual inflation rates.
In comparing July to August, the annual inflation rate decreased in 15 EU countries, remained stable in one, and increased in eleven countries.
The Central Bank of Ireland has projected an average inflation rate of 5.4% for Ireland this year, with a decrease to 3.2% next year. However, it expects inflation to remain above the EU’s 2% target, reaching 2.3% in 2025. The bank also expressed concerns about government spending contributing to higher prices and warned against exacerbating existing issues in the economy, such as housing and labor shortages.
Additionally, the Organisation for Economic Cooperation and Development (OECD) stated in its interim economic outlook that inflation remains persistent. It highlighted the need for interest rates to stay around their current levels to manage inflation. The OECD projects a decrease in global inflation from 7.8% in 2022 to 6% in 2023 and 4.8% in 2024.
Considering higher central bank interest rates and a weaker-than-expected recovery in China, the OECD forecasts global growth of 3% in 2023 and 2.7% in 2024, aligning with previous projections.
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