Euroarea inflation remains unchanged in August, core rate likely to remain stable in coming months

Euro area’s consumer price inflation remained unchanged in August. It came in at 0.2 percent in annual terms, the same pace seen in July 2016, according to the flash estimate released by Eurostat. Consensus expectations were for a rise of 0.3 percent. The subdued inflation figure was mainly due to a drop in energy costs when compared with the same period in 2015.

The inflation figure for August remains quite below the European Central Bank’s target range of close to 2 percent. The weak reading is mainly due to the 5.7 percent year-on-year decline in energy prices. Looking at other main components, food, alcohol and tobacco registered the highest annual rate in August, rising 1.3 percent. It was a tad lower than 1.4 percent recorded in July.

Services inflation also slowed a bit in August, rising 1.1 percent year-on-year, as compared with July’s rise of 1.2 percent. Meanwhile, non-energy industrial goods rose 0.3 percent in annual terms, slightly lower than the 0.4 percent recorded in July. The core figure came in at 0.8 percent in August, lower than July’s 0.9 percent and consensus expectations of a rise of 0.9 percent.

The core rate is expected to remain broadly stable in the months ahead, mostly reflecting low wage growth and underutilized capacities, noted Nordea Bank in a research report. Meanwhile, headline rate is expected to accelerate to about 1 percent the end of 2016, assuming increase in oil prices.

As inflation expectations continue to be quite below the central bank’s target rate, the ECB is unlikely to have been done with easing the monetary policy. As the policy rates are already so low, the main focus would be on asset buying, according to Nordea Bank.