Euro zone inflation rose by more than expected in August to its highest rate in four months, flash estimates showed on Thursday, raising expectations that the European Central Bank will start winding down its extra-loose monetary policy.
The EU statistics office Eurostat estimated that consumer prices in the euro zone increased by 1.5 percent year-on-year in August, from 1.3 percent in July and above market expectations of a 1.4 percent rise. It was the highest rate since April, when inflation was 1.9 percent, briefly hitting the ECB target of close to but just below 2 percent.
Excluding the two most volatile components of unprocessed food and energy, a measure closely watched by the ECB, inflation was stable at 1.3 percent in August, against market expectations of a drop to 1.2 percent.
The higher-than-expected inflation estimates are likely to increase expectations of a tightening of ECB monetary policy in the coming months. The ECB will hold a policy meeting next week. Energy products grew by 4.0 percent in August on the year, from a 2.2 percent rise in July.
The other main components of the indicator were stable. Eurostat’s flash estimate for the month does not include a monthly calculation. In a separate release Eurostat said on Thursday that the unemployment rate in the euro zone was 9.1 percent in July, the same as in June. It remained at its lowest level since February 2009.
In Germany, the largest economy of the bloc, unemployment dropped to 3.7 percent in July from 3.8 percent in June, raising expectations of bigger wage rises that could further increase inflation in the euro zone. Wage growth is also closely watched by the ECB to determine monetary policy. However, in France and Italy, the second and third economies of the bloc, unemployment went up in July.