European Inflation Rises in August

The flash estimate for eurozone inflation in September is 2.7%, up from 2.6% in August, according to Eurostat, the European Union’s statistical agency. Economists polled by Bloomberg had expected a decrease to 2.4%.

The eurozone’s stated inflation target is “2% or less,” but that number has been out of reach for many months now. The eurozone’s all-items index reached 3% in September 2011 and has been 2.4% or higher since April.

Energy costs rose 9.2% in September, the single largest contributor to the inflation index. The food, alcohol and tobacco index rose 2.9%. As bad as the energy rise is, however, it is lower than the 12.4% hike in September 2011.

Bloomberg points out that a September increase in Spain’s value-added tax pushed that country’s inflation rate to 3.5%, and the Italy, too, had a sharp increase in inflation.

The rise in inflation suggests that a downward move in the European Central Bank’s policy rate will not be forthcoming. The ECB has lowered its GDP growth target for 2013 to just 0.5%. It raised its inflation estimate from 1.6% to 1.9%, while expecting inflation to remain above 2% throughout the rest of this year.

Paul Ausick