PARIS (Reuters) – Euro zone inflation slowed in August from a year earlier to its lowest level in three years, in line with expectations, preliminary data from Eurostat showed on Friday, pointing to a further decline in borrowing costs in the currency bloc.

The consumer price index calculated according to European standards (HICP) in the 20 countries sharing the euro fell to 2.2% at an annual rate this month, a rate identical to the consensus of analysts polled by Reuters.

It is now very close to the European Central Bank’s (ECB) 2% target, thanks in particular to a drop in energy prices, while the re-acceleration of prices to 2.6% over a year in July had raised fears of stubborn inflation.

Although further upheavals in inflation cannot be ruled out by the end of the year and it may take until the end of 2025 for price growth to return sustainably to its 2% target, financial markets are expecting a 25 basis point cut in the ECB’s key interest rates following its meeting on 12 September.

Underlying inflation data, however, show a more mixed picture, with services inflation accelerating, something that could worry some ECB officials about wage growth in the sector.

Prices of services were probably boosted by the impact of the Paris Olympics, with costs in the tertiary sector in France rising sharply, which some economists believe would be a one-off and temporary impact.

Excluding the most volatile items of unprocessed food and energy, inflation stood at 2.8% in August, as in the previous month, while the consensus was +2.7%.

A narrower measure of price inflation, which excludes food, energy, alcohol and tobacco, shows inflation slowed to 2.8%, in line with expectations, from 2.9% in July.

(Written by Claude Chendjou, with Balazs Koranyi, edited by Kate Entringer)

Copyright © 2024 Thomson Reuters