Today’s quick estimate for consumer price inflation in August showed an inflation rate of +1.5 per cent. In the previous month it was still at +1.3 per cent. So while the inflation rate has come somewhat nearer again to the actual target of the European Central Bank (ECB) for consumer price inflation of “below but near 2 per cent,” it is doubtful whether it will reach the target in the next few months or will remain there sustainably in all member countries.
The underlying trend in the EMU countries is patchy at the moment: higher prices for energy are causing the inflation rate to rise gently. According to the first estimates for February the inflation rate – as measured by the European Harmonized Index of Consumer Prices (HICP) – in Spain stands at +2.0 per cent, in Germany at +1.8 per cent, in Italy at +1.4 per cent and in France at +1.0 per cent. The level of inflation remains very heterogeneous.
The biggest contributor to the increase in August was the year-on-year oil price recovery, which drove consumer prices higher. The oil price was up a good 11 per cent on the previous year. Energy prices in the consumer basket were up 4.0 per cent in the same period. As regards the other components of the basket of goods and services, inflation remained moderate. This is also shown by the core rate, which remained unchanged at +1.2 per cent.
A lot of the volatility of consumer price inflation in the past few months and years has been caused by the external effect of energy prices. Barring the effect of a few seasonal influences, price inflation for other goods and services, most of which are influenced by domestic economic effects, has charted at most a slightly rising sideways movement, but no more. This can be read off from the core rate. For the ECB it remains to be hoped that the increasingly entrenched economic upturn will boost consumer demand more notably and also be gradually reflected in prices for other goods. But so far there is not much sign of this.