Euro zone August price fall confirmed, core inflation slows

Outbreak of the coronavirus disease (COVID-19) near Frankfurt
FILE PHOTO: The skyline with its financial district is photographed during sunset as the spread of the coronavirus disease (COVID-19) continues in Frankfurt, Germany, September 7, 2020, REUTERS/Kai Pfaffenbach

September 17, 2020

BRUSSELS (Reuters) – Euro zone consumer prices fell in August, the EU’s statistics office confirmed on Thursday, pulled down by a drop in energy prices, but core inflation that excludes such volatile elements decelerates sharply too.

Inflation in the 19 countries sharing the euro fell 0.4% month-on-month in August for a -0.2% year-on-year decline, Eurostat said, in line with its own earlier estimate and market expectations.

Energy prices which fell 7.8% year-on-year in August had the biggest impact on the overall consumer price index, subtracting 0.77 percentage point from the final number.

Non-energy industrial goods pulled the index a further 0.03 percentage point lower, offsetting the 0.33 point positive contribution from food alcohol and tobacco and 0.30 point from services.

Without the volatile food and energy prices, or what the European Central Bank calls core inflation, prices fell 0.5% on the month for a 0.6% annual increase, as expected by economists polled by Reuters. This is a deceleration from 1.3% year-on-year growth in July.

An even narrower measure of inflation which also excludes alcohol and tobacco prices, fell 0.6% month-on-month for a 0.4% year-on-year increase, slowing from 1.2% growth in July.

The ECB wants to keep inflation below, but close to 2% over the medium term and watches the core inflation measure closely in its policy decisions.

(Reporting by Jan Strupczewski, editing by Marine Strauss)