Inflation in France and Spain accelerated in August, largely driven by higher energy prices due to the ongoing war in the Middle East, reinforcing expectations that the European Central Bank would hike rates at its September monetary policy meeting.
France's annual inflation rate increased to 2.4% in August from 2.1% in July, provisional data from statistics agency Insee showed Friday. On a monthly basis, consumer prices were 0.7% higher, matching market forecasts, against the prior 0.6% rise.
Energy prices jumped 16.7% year over year in August, following a 12.6% gain in the previous month, as costs for petroleum products climbed. Growth in food prices ticked up to 1.1% from 1%, while that for services eased to 2% from 2.2%.
In Spain, preliminary data showed that annual consumer price growth rose to 4.3% in August from 3.6% a month ago, according to the National Statistics Institute. The latest reading sits above the consensus estimate of 4.2%. On a monthly basis, consumer prices were up 0.7%, against the previous 0.3% rise.
Meanwhile, the annual core inflation rate in the country edged down to 2.9% from 3%.
During the European Central Bank's July meeting, members of its Governing Council discussed whether interest rates needed to move into "mildly restrictive" territory amid concerns over the inflation outlook amid the Middle East conflict, but they decided to leave the key rates unchanged while stressing the council's commitment to setting monetary policy that would ensure inflation in the euro area stabilized at the ECB's 2% medium-term target.
"Even if the ECB doesn't like the term, the second rate hike this year would also fall into the category of 'insurance rate hike', or maybe more to the ECB's liking: a rate hike to strengthen the ECB's credibility and to preempt any possible indirect or even second-round effects from the current energy price shock," ING said in a Thursday note on expectations of a rate hike in September.
"Whether the ECB will really go beyond a September rate hike is a completely different story. With one additional rate hike, the deposit rate would still be within the range the ECB itself calls neutral. Going further would mean that the ECB sees restrictive monetary policy as necessary. But there is a big difference between an economy that has shown resilience and an overheating economy that needs restrictive monetary policy."
