Filenews 1 September 2023
Two disappointments were in store for Cyprus in the harmonised inflation data released yesterday by Eurostat for August, while the situation becomes even more complicated in the Eurozone, 14 days before the ECB's governing council meets to decide whether to raise interest rates for the 10th time in 13 months or leave them stagnant.
After a series of decreases in the rate of increase in prices, an increase was recorded in Cyprus for August, while the second disappointment comes from food inflation, which continues unabated.
The European statistics office puts August inflation in the euro zone at 5.3%, stable compared with July, despite consecutive interest rate hikes since July last year, aiming to bring it down to close to 2%. Analysts in Europe had mostly expected inflation to slow to 5.1%.
New climb round?
Based on Eurostat data (which usually deviate from the data of the Cyprus Statistical Service, due to a different methodology), inflation in Cyprus in August this year rose to 3%, from 2.4% in July. We recall that in August 2022 inflation was 9,6%.
Although inflation in Cyprus is now running at a much slower speed than last year, the increase in the rate of price growth for August is a concern, as it may point to a recovery in prices for the coming months, but also because the 3% recorded by Eurostat put an end to a streak of deceleration of inflation.
8.6% more expensive food
The second element of concern from Eurostat data concerns food inflation in Cyprus, which persists in not declining and remains almost two and a half times above general inflation, making life difficult for households, which due to the high prices are now difficult to save, as confirmed by data recently announced by the Central Bank.
In August, food, alcohol and tobacco prices were running at an annual rate of 8.6%, compared with 8.7% in July and 8.9% in June, while energy prices continued to decline but at a slower rate of -7.8% in August, compared with -14.1% in July and -15.4% in June.
Difficult decision
Eurozone inflation data for August complicates the decision the European Central Bank has to make on September 14.
On the one hand, headline inflation remained stable at 5.3%, while on the other hand, core inflation, which excludes energy, food, alcohol and tobacco prices, declined slightly to 5.3% from 5.5% in July.
The ECB has raised interest rates nine times in the past 13 months, with debate now ignited over whether to deliver a 10th hike on September 14.
According to information from Reuters, ECB officials have added to the concern the sharp slowdown in growth in the Eurozone (as a result of tighter monetary policy), with the risk that the economy, which has stagnated for the past three quarters, will even enter a recession.
Markets are divided over their expectations for the ECB's next meeting.
Speaking at an ECB conference in Frankfurt on Tuesday, central bank board member Isabel Schnabel acknowledged that growth was under pressure but did not rule out the possibility that tightening could continue, warning that underlying inflation remained stubbornly high.
Worst in the Eurozone
In the euro area, food, alcohol and tobacco prices rose 9.8% from 10.8% in July, while energy prices fell 3.3% against a 6.1% decline.
The prices of services (5.5% from 5.6%) and non-energy industrial products (4.8% from 5%) slowed slightly. In Germany, the euro zone's largest economy, annual inflation stood at 6.4 percent in August, up from 6.5 percent in July, while in France, the second-largest economy, it rose to 5.7 percent from 5.1 percent the previous month.
Eurostat informs that the highest inflation in August was recorded in Slovakia with 9.6% and the lowest in Belgium and Spain (2.4%).
