Eurozone inflation hits new record in August

Eurozone inflation hit a new record this month, beating expectations and consolidating arguments in favor of yet another big interest rate hike by the European Central Bank, even before prices peaked around the turn of the year.

The annual rise in consumer prices in the 19 countries sharing the euro rose to 9.1% in August from 8.9% a month earlier, against expectations of 9% and far from the ECB’s 2% target, this week showed. Wednesday data from Eurostat, the EU’s statistics agency.

Energy costs continued to boost prices, but food inflation also climbed into double-digit territory, while non-energy industrial goods, a particular focus for the ECB, showed a 5% price increase.

The numbers only add to the concerns of the ECB, which is gearing up for another big rate hike next week, but the outlook is even bleaker.

Rising energy prices just before winter sets in and the reversal of some German subsidies almost guarantee that inflation will continue to rise and exceed 10% before peaking around the turn of the year.

But more importantly, core prices, which eliminate volatility in food and energy prices, continued to rise, suggesting that rapid price growth is spreading throughout the economy.

Inflation excluding food and fuel jumped from 5.1% to 5.5%, while an even narrower measure, which also excludes alcohol and tobacco, rose from 4.0% to 4.3%.

“Inflation is likely to pick up sharply next month, heading towards 10% as some energy relief measures expire in Germany,” UniCredit said in a note ahead of the data release.

All of this adds to the justification for a big rate hike by the ECB on September 8.

(Reporting by Balazs Koranyi)