Inflation in France, Spain, and Italy Shows Stability in August

Inflation in France, Spain, and Italy remained lower than anticipated in August 2023, providing some reassurance regarding economic stability in the Eurozone. The latest consumer price index data indicates that inflation figures in these countries were 0.1% below expectations, suggesting a potential pause in interest rate changes by the European Central Bank (ECB) at its upcoming September meeting.

In Germany, the Eurozone’s largest economy, inflation rose slightly above forecasts in July, recorded at 2.2% year-on-year, compared to 2% in June. While food prices contributed to this increase, a decline in energy costs helped to moderate the overall inflation rate. According to the Federal Statistical Office, prices rose by 0.1% month-on-month.

In France, the EU-harmonised inflation rate was modest at 0.8% year-on-year in August. This figure was primarily influenced by slow inflation in the services sector. Food prices showed stability, and a decrease in energy costs contributed to the overall moderation. Month-on-month, prices increased by 0.5%, as reported by INSEE.

Spain’s EU-harmonised consumer price index experienced a 2.7% increase annually, with no change month-on-month, according to preliminary estimates from the National Statistics Institute (INE). Meanwhile, Italy saw a 1.7% year-on-year increase in prices, reflecting a slowdown from previous months as inflation eased for energy products while food prices rose. Month-on-month, prices edged up by 0.1%. In a related report, ISTAT confirmed that the Italian economy contracted by 0.1% quarter-on-quarter during the three months ending in June, although it expanded by 0.4% compared to the second quarter of 2024.

European Central Bank’s Position

The recent inflation figures align with the ECB’s current outlook, indicating satisfaction with price stability as a key objective. The ECB targets an inflation rate of 2%. Minutes from the ECB’s July meeting, released on August 25, 2023, suggest that the Governing Council perceives the risks surrounding the inflation outlook as “broadly balanced.”

The central bank has lowered key interest rates eight times, with the current rate on the deposit facility standing at 2% since June. Despite this, the minutes also caution that escalating global trade tensions could pose risks to economic growth, potentially impacting exports and reducing investment and consumption.

Given these considerations, another rate cut by the ECB in September appears unlikely. Nonetheless, Carsten Brzeski, Chief Economist at ING, emphasizes that it is premature to dismiss the possibility of a rate reduction. He highlights ongoing risk factors affecting the Eurozone economy, including uncertainties surrounding the trade agreement between the United States and the European Union, renewed concerns regarding French public finances, and the strengthening euro.

Brzeski remarked, “Even if it might be counterintuitive given the resilience of the Eurozone economy, we still wouldn’t rule out another insurance rate cut, following the principle that it wouldn’t do any harm but could eventually do good.”

As the Eurozone navigates these economic currents, the stability of inflation in key member states may play a critical role in guiding future monetary policy decisions by the ECB.