Slowing inflation in the Eurozone’s two largest economies have raised hopes that the European Central Bank (ECB) will not raise interest rates again when it meets in September after it raised its key rate by another quarter point on 27 July.
In Germany, July’s inflation pace eased to 6.5 percent, the slowest since February 2022 and slightly better than analysts had expected. Core inflation, cutting out energy and food prices, slipped from 5.8 percent in June to 5.5 percent in July.
Thanks largely to a drop in energy costs, France’s rate of price increases slowed to 5 percent.
The two figures helped drive the zone’s overall inflation rate down to 5.3 last month, although inflation in Spain jumped to 2.1 percent, compared to 1.6 percent in this year’s first quarter.
Italy, Austria and Sweden had negative GDP growth. After racking up two consecutive quarters of contraction, Germany’s economy is still in the dumps, with its basically flat in the second quarter. And while France’s economy grew, it was mainly due to a large cruise ship order.
“The drivers of inflation are changing,” ECB president Christine Lagarde said in a 27 July press briefing. “External sources of inflation are easing. By contrast, domestic price pressures, including from rising wages and still-robust profit margins, are becoming an increasingly important driver of inflation.”
The bank will be watching not only consumer prices, but also wage growth in the labor-intensive services sector, as it makes its next decision regarding interest rates, the Financial Times noted.
TRENDPOST: Rather than blaming themselves and governments for record low interest rates and pumping in countless trillions of dollars of fake money printed on nothing and backed by nothing to fight the COVID War, the ECB and U.S. Federal Reserve have fixated on the jobs market as the key to halting inflation: they have insisted that hiring and wage growth must slow before pressure on prices can ease.
As we note in this issue’s ECONOMIC UPDATE, the Eurozone’s GDP is on the skids.
If the central bank continues raising its rate until the labor market sags, the rates will be high enough to drop the zone into a full-on recession that is already on the way.