Eurozone inflation hits 10-year high in August

Eurozone inflation hit a 10-year high in August, according to figures released on Tuesday by Eurostat.

Consumer price inflation rose by 3% following a 2.2% increase in July, coming in well above expectations of 2.7% and the European Central Bank’s 2% target. It also marked the highest level since 2011.

Energy prices were up 15.4% on the year in August, while non-energy industrial goods rose 2.7%. Food, alcohol and tobacco prices were 2% higher, while services prices were up 1.1% on the year.

Core inflation - which strips out energy, food, alcohol and tobacco - increased to 1.6% in August from 0.7% in July.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said: "We suspect that euro-zone inflation will rise even further in the coming months. But this is due to temporary forces that should fade next year, leaving headline and core inflation well below 2% by the end of 2022."

He said a big jump in core inflation was always likely, reflecting base effects related to last year’s VAT cut in Germany, and while the outturn was in line with Capital Economics’ estimate, it was stronger than the consensus forecast.

"The effects of re-opening and supply problems could intensify in the next few months. But we suspect that they will begin to fade next year as global consumption and trade patterns return to something like their pre-pandemic norms, and producers (especially of semiconductors) are able to increase their output. We think the headline rate will drop to about 2% in January then trend down throughout the year to end 2022 at around 1%."