Inflation is rising again in Europe, driven above all by the rise in energy prices and the conflict in the Middle East. In August the figure could reach the highest level of the last three years both in the Eurozone and in Italy. According to the average of the estimates of 31 economists consulted by Bloomberg, inflation in the euro area should rise to 3.3% on an annual basis, after the 2.9% recorded in July. It would be the highest value since September 2023. An increase is also expected for Italy. The figure harmonized with European parameters should reach 3.4%, compared to 2.9% in the previous month. Again this would be the highest level since September 2023.
Inflation, the burden of energy price increases
The energy component is above all affecting the new acceleration in prices. The stalemate in the Middle East continues to support commodity prices. Brent has remained at around 90 dollars a barrel for about two weeks, while TTF futures on natural gas, a reference for the European market, have reached an intraday peak of 70 euros per megawatt hour, the highest level since 2022. The effects can also be seen on fuels. In Italy petrol is close to 2.1 euros per litre, while diesel exceeds 2.2 euros on the motorway. The risk also concerns energy bills and supplies: families and businesses could face new double-digit price increases.
The price movement does not only concern Italy. In Germany the figure is expected to increase from 2.8% in July to 3.1%. In the previous week, France and Spain also recorded a progression in inflation. In France the figure reached 2.4% on an annual basis, while in Spain it reached 4.3%. The picture confirms widespread pressure in the European area, although with different intensities between the various countries.
The ECB considers a new tightening
The surge in prices may complicate the choices of the European Central Bank. Markets consider a rate increase likely at the meeting on September 10th. The hypothesis is an increase of 25 basis points, with the main reference rate going from 2.25% to 2.5%. A new tightening would have direct effects on the cost of credit, already high for families and businesses. According to Abi data, the average rate on new loans is 4.08%, while that on mortgages is 3.48%. Both are at their highest levels in the last two years.
Why underlying inflation matters
One element observed by the ECB concerns underlying inflation, i.e. the data stripped of the more unstable components such as energy and food. According to estimates, the core index should remain stable at 2.5%. This means that, at least for now, the increase in energy costs does not appear to have been passed on across the board to other goods and services. However, the data remains central to monetary policy decisions. If energy continues to push overall inflation above 3%, the ECB could choose to intervene further on rates.
Price pressures also concern the United States, where the Federal Reserve remains highly attentive. According to CME data, the probability of a rate hike in September in the United States has risen to 57%, from 35% in the previous session.
