The flash HICP was unrevised in the final data for August. A 0.2 percent monthly rise in prices put annual inflation at 2.0 percent, in line with its previous estimate and a tick short of the final print for July. This was the first fall in the yearly rate since February.
More importantly, the underlying picture was similarly unrevised and so also a little softer than at the start of the quarter. The narrowest core gauge which excludes energy, food, alcohol and tobacco, was 0.2 percent firmer on the month which trimmed its annual rate by a tick to 1.0 percent. Omitting just energy and unprocessed food and without only energy and seasonal food the rate also edged down 0.1 percentage points versus July to 1.2 percent. Non-energy industrial goods inflation was down a tick at a lowly 0.4 percent while its services counterpart was 1.3 percent, similarly 0.1 percent less than in the previous month. The bottom line is that headline inflation continues to be dominated by food, alcohol and tobacco, which contributed nearly 0.5 percentage points and, in particular, energy which added almost 0.9 percentage points.
The new ECB forecasts released just last week put core inflation (HICP excluding food and energy) flat at 1.7 percent throughout the projection period ending in 2020. However, the risks probably remain on the downside in respect of the stickiness of the rate over the last couple of years and recent signs of slowing economic growth. If so, even if QE is terminated as planned at year-end, official interest rates could remain at current levels (benchmark refi rate 0.00 percent) well beyond summer next year.
The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.
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