Euro zone CPI data released today show that headline inflation in the Eurozone rose 2.5 percent in August on a year on year basis, which was in line with expectations and unchanged compared to July.
However, with regards to the Core CPI annual rate, there was a surprise increase to 1.5 percent, which was higher than the forecast 1.3 percent, but again unchanged from July’s 1.5 percent.
The core CPI measures the change in the price of goods and services purchased by consumers, excluding food, energy, alcohol, and tobacco;
The data might make the European Central Bank reluctant to cut rates until it proves to be necessary as they have already allowed money market rates to move lower. But given the economic slowdown in the region the ECB is no longer concerned about inflation. The ECB forecasts 2011 inflation at 2.5-2.7 percent.
The European Commission said today that the euro zone economy will come nearly to a halt at the end of the year because slower global growth will dent exports and the sovereign debt crisis will hit household consumption and investment.
“The outlook for the European economy has deteriorated. Recoveries from financial crises are often slow and bumpy,” Economic and Monetary Affairs Commissioner Olli Rehn said. “The EU economy is affected by a more difficult external environment, while domestic demand remains subdued. “The sovereign debt crisis has worsened, and the financial market turmoil is set to dampen the real economy,” he added.