Unlock Digest Editor for free
FT Editor Roula Khalaf picks her favourite stories in this weekly newsletter.
Spain’s inflation fell more than expected in August to hit its lowest level in a year, official data showed, in welcome news for European Central Bank policymakers weighing a possible interest rate cut next month.
Spain’s adjusted annual inflation rate – a benchmark measure for the EU and eurozone – fell to 2.4 percent in August from 2.9 percent in July, marking its lowest level since August 2023. The National Institute of Statistics said on Thursday. Economists polled by Reuters had forecast a decline to 2.5 percent.
The data also showed core inflation, which excludes energy and food, fell to 2.7% in August from 2.8%, the lowest since January 2022. Inflation in Spain, the eurozone’s fourth-largest economy, peaked at a multi-decade high of 10.7% in July 2022 after energy and food prices spiked following Russia’s invasion of Ukraine.
The data was released a day before flash figures for August. euro zoneMarkets expect inflation in the currency bloc to fall to 2.2% from 2.6%, a decline that would give policymakers further evidence that inflation is on track to hit the ECB’s 2% target by year-end.
Markets are expecting the ECB to cut its deposit rate by 0.25 percentage points to 3.5% at its next meeting on September 12.
George Moran, an economist at Nomura Bank, said the eurozone’s recent weaker-than-expected wage growth in the second quarter “essentially makes a September rate cut all the more likely”.
The ECB cut borrowing costs for the first time since the coronavirus pandemic began in June, while the Bank of England cut interest rates this month. The Federal Reserve is expected to cut borrowing costs for the first time in more than four years in September.
Inflation data from several German states also showed a sharp decline in August. Nationwide inflation figures, due out on Thursday, are expected to show annual growth slowing to 2.1 percent in August from 2.3 percent the previous month.
“Taken together, the Spanish and German inflation figures suggest that eurozone inflation in August was even lower than our consensus forecast of 2.2 percent and therefore closer to the ECB’s 2 percent inflation target than expected,” said Melanie Debono, economist at Pantheon Macroeconomics.
Moran said August inflation data “is likely to increase expectations for an October rate cut.”
He added that lower inflation for the Eurozone would underline Comment by Philip Lane last week on the risks of rising interest rates to the inflation outlook.
The ECB’s chief economist warned at the Jackson Hole meeting of central bank governors that “a path of interest rates that is too high for too long will lead to inflation remaining consistently below target over the medium term”.
