Delayed summer sales push inflation rate below zero in the EMU


Inflation in the euro zone weakened quite considerably in August. The Harmonized Index of Consumer Prices (HICP) in the monetary union fell from +0.4 to -0.2 percent. Overall inflation is still being dampened by the low level of energy prices. However, the bulk of the decline in many countries is attributable to the late summer sales, which were postponed from July to August as a result of the corona pandemic.

In the consumer basket of goods, there was a significant fall in the price of non-energy industrial goods. These are typically the goods of the classic retail trade. While clothing and shoes were unusually expensive in Italy and France in the previous month, for example, and thus gave a noticeable boost to the overall inflation rate, the upturn in prices fell significantly with the summer sales in August.

On a country level, the corrections were felt in annual rates in France and Italy, among other countries. In France, the inflation rate fell from 0.9 to 0.2 percent, while in Italy it even slipped from 0.8 to -0.5 percent, and thus into negative territory. However, the annual rate also fell disproportionately in Belgium and the Netherlands. In contrast, the German inflation rate fell only slightly from 0.0 to -0.1 percent. Here, however, the development was overshadowed by the reduction in VAT in July.

Once the one-off effect of the postponed summer sales in July and August has disappeared, consumer prices should normalize again at a low level in the coming months. The decline in energy prices should also gradually subside as the oil price stabilizes further. However, the inflation rate will thus remain below the target set by the European Central Bank.

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