Softer inflation in August will continue to be pressured by the behavior of food and will barely give the European Central Bank (ECB) any respite in its battle against the rising cost of living. The effects of the high temperatures and the drought have continued to be felt in the shopping basket throughout the summer and have added to those that the summer season has had on the prices of fuels, tourist packages or the hotel industry.
In Spain, where the annual CPI rate rose four tenths in July to 2.3%, fresh food and non-alcoholic beverages became more expensive by 10.3% after having moderated their rise for four consecutive months. Everything seems to indicate that its increase will continue to be in double digits or very close to it for the remainder of the year. Although the Eurozone seems to have left the inflation peak behind, it still remains at very high levels (5.3%), almost double that of the United States (3.2%).
At the same time, the differences within the region are also notable. The CPI rate has accelerated in Germany to 6.2%, far from the 2.3% in Spain or the 3.7% registered by Luxembourg in July. Looking ahead to the current month, energy prices are practically unchanged in the euro area -despite the fact that fuel prices would have a strong positive contribution due to the base effect and the recent increase-. This will be so in a context in which electricity has continued to become more expensive, while the price of gas has fallen.
As food commodity prices continue to fall internationally, this should negatively impact consumer food prices in the medium term, Nomura analysts say, pointing to a nine-month relationship since the The behavior of the world food price index prepared by the United Nations is transferred to the price of these products. Thus, although in August there will be a monthly increase in food, it will in all probability be more moderate than at the beginning of the year.
Over the past 12 months, the ECB has raised its benchmark rates by 425 basis points, unprecedented activity since its inception. At the central bank they are seeing the first signs that these tightening operations are taking effect. However, he does not expect them to be fully developed until the end of this year and the beginning of next year, experts from the German manager Spectrum Markets recall.
Attention to the underlying behind the clear message from Jackson Hole
“The market is now pricing in further monetary tightening in the euro zone than in the US, reinforcing the risks of a hard landing in Europe,” adds Chris Iggo of AXA Investment Managers. Eurozone GDP grew just 0.3% in the second quarter after stagnating between January and March. Last week the PMI data confirmed that the drop in production in the manufacturing sector, which has been weighing down the area’s recovery, is now also compounded by a drop in business activity in the services sector.
One of the keys will be to see what happens to the core, which excludes the price of fresh food and energy from its calculation, next Thursday, when Eurostat will release its inflation preview for August. This variable, which tends and reflects more structural tensions, could moderate to around 5.3%, as calculated by Nomura. This level could give the ECB some room to pause. “We fear that if we see an unchanged figure or above the current level of 5.5%, it will be difficult for a data-dependent ECB to justify a pause in rate hikes,” they argue.
For now, the president of the station, Christine Lagarde, stressed the need to maintain the 2% inflation target in her speech at Jackson Hole, the annual event that brings together the world’s leading central bankers in the idyllic settings of Wyoming. (USA). Lagarde was emphatic in rejecting the possibility of changing the objective of central banks, as some sectors had claimed, and promised to “set interest rates at sufficiently restrictive levels” to ensure that inflation returns to the desired level. She made it clear after making it clear to Federal Reserve Chairman Jerome Powell that the battle against rising prices is not over yet.