Eurozone CPI drops below forecasts in August, rate futures steady

Inflation pressures in the single currency bloc ebbed in August, amid broad-based declines outside of processed food, alcohol and tobacco prices.

According to Eurostat, the year-on-year rate of change in the euro area's consumer price index slipped from 2.1% for July to 2.0% last month.

Economists had been anticipating an unchanged reading until lower-than-expected readings on German and Spanish CPI were published the day before.

Nevertheless, harmonised CPI data for France and Italy released earlier on Friday had surprised to the upside, printing at up by 2.6% (consensus: 2.5%) and 1.7% year-on-year (consensus: 1.6%), respectively.

So too, the pace of gains in 'core' CPI, which excludes energy, food, alcohol and tobacco prices retreated from 1.1% to 1.0% (consensus: 1.1%).

The rate of advance in processed food, alcohol and tobacco prices in the Eurozone was unchanged last month at 2.4%, but that for unprocessed food dipped by one tenth of a percentage point to 2.5%.

Energy cost increases also slowed, from 9.5% to 9.2%, while those for non-energy industrial goods advanced at a clip of 0.3%, versus 0.5% in July.

Service price inflation also moderated from one month to the next, falling back from 1.4% to 1.3%.

Commenting on Friday's figures, Claus Vistesen at Pantheon Macroeconomics said he was surprised by the drops in services and non-energy goods prices, but noted how euro area interest rate expectations out to December 2019 were unchanged following the release of the figures.

Looking forwards, he added: "Base effects in oil prices suggest that energy inflation will fall further, pulling the overall headline down towards 1.6% at the end of the year.

"The core rate should edge higher to about 1.3%, but risks are tilted to the downside given still-low goods inflation and a number of one-off factors depressing inflation in services, mainly German education services and French rents."