Eurozone inflation fell to 2.1% in August, shifting policy focus toward supporting economic recovery and creating scope for up to two ECB rate cuts if disinflation continues. The ECB will require clear evidence that inflation expectations remain anchored before committing to further easing. Cutting rates to 1.5% would be a drastic move and is not a cure-all, because the economy faces deep structural constraints in government debt, employment, defence spending, and energy costs. Falling wholesale gas and oil prices and cooling services inflation have reduced headline and core inflation, while wage stickiness and volatile energy, wage settlements, and trade tensions continue to pose risks.
Supporting economic recovery is now the main concern for policymakers in Europe, as Eurozone inflation remained low at 2.1% in August, marking continued progress in bringing price growth under control. If the disinflation path continues, there is scope for up to two more ECB cuts before the end of the year - though the ECB will want firm evidence that inflation expectations remain securely anchored before committing to further moves.
Taking interest rates down to 1.5% would be a drastic measure to combat the bloc's economic woes, but lowering rates is not a silver bullet. The European economy is being held back by deeply embedded structural challenges in areas such as government debt, employment, defence expenditure, and energy costs. These are not cyclical issues that can be wholly managed by an astute central bank.
Falling wholesale gas and oil costs remain a major force pushing the headline rate lower, and core inflation in the Eurozone remains low, with underlying pressures in services showing signs of cooling. While wage growth in these sectors continues to keep inflation stickier than in goods, the overall direction of travel is downward. Food prices are rising at a slower pace, offering some relief to households who have faced persistent cost-of-living pressures over the past two years.
Collection
[
|
...
]