Euro inflation breaks ECB tolerance threshold
Inflation within the euro currency area has climbed back above the European Central Bank’s 2% tolerance threshold, Eurostat said yesterday. The increase in the inflation rate from July’s 1.9% came as consumer prices rose 0.2% from the previous month and was in line with economists’ forecasts.
The data comes a day after ECB governing council member Vitor Constancio said euro zone inflation would not be much below 2% this year but would be clearly below that level in 2004.
An annual increase of 2.6% in food prices was the main factor driving the inflation rate higher, with Eurostat citing a rise in tobacco prices, included in the food component, as the biggest culprit.
After stripping out tobacco costs, consumer prices rose 1.9% from a year earlier. Fruit and vegetable costs fell on a monthly basis, partially offsetting a sharp monthly rise of 1.0% in energy prices. This suggests the impact of a summer heatwave on food prices has yet to be felt, a Eurostat official said.
The measure of core prices referred to by the ECB, which excludes volatile energy and unprocessed food costs, rose 0.1% from a month earlier and 1.9% from a year ago.
The inflation report is unlikely to change financial markets’ expectations about the outlook for interest rates. ECB officials signalled on Tuesday that euro zone interest rates were low enough to support economic recovery in the region and would remain on hold for some time to come.
The inflation data showed persistently large divergences between national inflation rates. They ranged from 3.9% in Ireland to 1.2% in Finland. Italy was the only member of the euro zone to report a monthly decline in consumer prices in August.
Eurostat said there had been revisions to Dutch inflation data for the year to June 2003.
It said the revisions were due to errors in the processing of scanner data for supermarket products.
