Belgium's inflation rate remained the lowest in the eurozone in August despite rising more than 40% compared to the previous month.
According to figures released on Thursday by Eurostat, the EU's official statistics office, Belgium's annual inflation rate rose from 1.7% in July to 2.4% in August: the joint-lowest rate in the bloc, alongside Spain. Annual inflation is the change of the price level of consumer goods and services between the current month and the same month of the previous year
Belgium also had the bloc's lowest inflation rate in July, when it was the only EU Member State to post a rate below the European Central Bank's (ECB) 2% target.
Overall, eurozone inflation remained stable at 5.3% from July to August. Food, alcohol and tobacco were the principal drivers of price pressures, followed by services and non-energy industrial goods. Energy's contribution to the headline rate was negative.
A much-needed break?
More promisingly, core eurozone inflation (which strips out energy and unprocessed food items) fell from 6.6% to 6.2% from July to August. This adds weight to the forecasts of some economists who predict that the ECB will pause rate hikes at its next meeting on 14 September.
At its last meeting in July, the EBC raised interest rates by 25 basis points (0.25 percentage points), bringing its benchmark deposit facility rate to a record high of 3.75%. The ECB has raised interest rates on nine consecutive occasions in the past year as it tries to slow persistent European inflation, which peaked at 10.6% in October last year.
In a recent poll by Reuters, 53% of economists predicted that the ECB will leave interest rates unchanged at its next meeting. However, a similarly small majority forecasts that the ECB will hike its deposit facility rate to 4.00% before the end of the year.
In July, ECB President Christine Lagarde suggested that the Bank is "getting closer" to its terminal rate but remained steadfastly noncommittal on whether there would be future rate increases.
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"Do we have more ground to cover? At this point in time I wouldn't say so," she said, adding: "There is a possibility of a hike, there is a possibility of a pause. It's a decisive maybe."
In addition to the current headline and core eurozone inflation rates, the ECB's decision is likely to be affected by recent poor growth figures throughout much of the EU, especially Germany. The German economy has experienced three consecutive quarters of contraction or stagnation.
Speaking to l'Echo, Hans Bevers, the Chief Economist at Degroof Petercam, an investment bank, stressed that Europe's economic fragility means that the ECB should refrain from further rate hikes at its next meeting.
"I would advise taking a break," Bevers said. "The real monetary tightening has already taken place and inflation has started to fall again. Whether the rates are at 3.75% or 4%, what does it change? Of course, the central bankers have had a lot of criticism to digest, so they cannot afford to take things lightly. But the real economy is also important."
