Inflation on the continent has now fallen to 2.2% after two years of elevation.
These latest figures come from Eurostat, the European Union’s (EU) official statistics agency. The statistic reflects not just the EU, but the entire European area, and remains an estimate. However, it showed a dip of 0.4 percentage points from July 2024, and is 0.3 percentage points lower than June 2024. While this may be a temporary dip, it is still much lower than in October 2022 when it topped 10.6%.
Dig a little deeper into the statistics, however, and there is great variation. Inflation remains highest in Belgium, where it was estimated at 4.5%. It also remained stubbornly high in Estonia, the Netherlands, Slovakia, Greece, and Croatia, where it is estimated by Eurostat to be 3.4%, 3.3%, 3.2%, 3.1%, and 3.0%.
Intriguingly, Germany’s inflation is estimated to be 2%, with a host of other countries — Portugal, Luxembourg, Italy, Ireland, Slovenia, Finland, Latvia, and Lithuania — supposedly having even lower rates.
The overall picture, nevertheless, is that the larger European economies of France and Spain have inflation rates between 2% and 3%. Also notable, and possibly related, is that the statistics for the EU countries indicate that inflation in them has remained a 0.1 or 0.2 percentage point higher than the European area.
What remains is whether the European Central Bank will cut its base interest rate from the current 3.75%.
See also: Deloitte: European markets to transition away from ‘wait and see’ approach
Some, like Carsten Brzeski, global chief of macro at ING Bank, believe that the lower German inflation figure will ‘tilt the balance’ to a rate cut this month.
This was a view supported by François Villeroy de Galhau, governor of the Bank of France, who told Le Point that a rate cut would be ‘just and wise’.
There may still be some storm clouds on the horizon.
Brzeski wrote a few days ago: “At face value, this inflation report is great news for the ECB as it finally shows the first signs of a broader disinflationary trend, which goes beyond energy prices. At the same time, however, it is too early to give the all-clear on inflation both in Germany and the entire eurozone.”
He added: “This morning’s wage data is one of the reasons for concern. German real wages increased for the fifth consecutive quarter, potentially fuelling inflationary pressures further down the road. Also, don’t forget that German unions are going into the post-summer bargaining rounds with high demands. It could take longer than the ECB expects before wage growth in the eurozone comes down significantly.”
