German inflation edges higher, adding to case for ECB hike

[BERLIN] German inflation inched higher, reinforcing the case for the European Central Bank to raise interest rates next month.

Consumer prices jumped an annual 2.9 per cent in August after advancing 2.8 per cent the previous month. That’s the strongest reading since April and below the 3.1 per cent median estimate in a Bloomberg survey.

Energy was the driver, once again, as a Middle East peace deal remains elusive, while services and food eased.

The report follows evidence from France and Spain that oil and gas prices are stoking inflation across the region, increasing pressure on the ECB to act. Officials have already lifted borrowing costs once and are set to do so again on Sept 10. Traders are betting on monetary policy being tightened further still next year.

The arguments “are there” for a September move, Slovenian Governing Council member Primoz Dolenc said told Bloomberg last week.

At 2.25 per cent, the ECB’s deposit rate currently sits at a level that neither stimulates nor constrains demand. The 21-nation economy has proved surprisingly resilient thanks to spending on the military and investments in artificial intelligence. 

That prompted officials to discuss at their June meeting whether policy settings will have to become “mildly restrictive,” something that would probably require more than a single quarter-point hike.

Officials are alert to the risk that faster inflation will trigger so-called second-round effects. 

“There is no clear evidence yet, but this will become much clearer during autumn,” Austrian Governing Council member Martin Kocher told Bloomberg Television separately. “That will determine the rate path in the future,” 

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In Germany, where temporary fuel-price relief expired in June, August inflation was fed by heating oil and costs at the pump. Education also contributed at the start of the new school year.

In the eurozone, inflation likely picked up to 3.3% this month, according to the median estimate in a Bloomberg poll before Tuesday’s data release from Eurostat. BLOOMBERG