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Eurozone Inflation Hits Fresh Record High

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Eurozone inflation hit a new record in August, reflecting the intensifying cost of living crisis, and added further pressure on the European Central Bank to tighten policy more aggressively as soon as next week.

Inflation rose to 9.1 percent in August from 8.9 percent in July. The pace was also above economists' forecast of 9.0 percent.

Core inflation that excludes energy, food, alcohol and tobacco, advanced to 4.3 percent in August from 4.0 percent in July, while the rate was expected to remain steady at 4.0 percent.

Compared to July, the harmonized index of consumer prices gained 0.5 percent in August.

Although the annual growth in energy prices slowed again in August, prices were up 38.3 percent. Food, alcohol and tobacco prices rose at a faster pace of 10.6 percent after climbing 9.8 percent.

Non-energy industrial goods prices moved up 5.0 percent after July's 4.5 percent growth. Likewise, the increase in services costs rose to 3.8 percent from 3.7 percent.

The next release with full data for August 2022 is due on September 16.

The further increases in headline and core inflation in August, and likelihood that they will keep rising, will add to the pressure on the ECB to step up the pace of tightening, Jack Allen-Reynolds, an economist at Capital Economics said. The balance of probabilities is shifting towards a 75 basis point hike next week.

Another hike of at least 50 basis points in September seems to be a done deal, with the hawks pushing for 75 basis points, Bert Colijn, an ING economist said. The big question is how the ECB will respond after this, if indeed signs of economic distress become more apparent, and inflation remains highly driven by supply-side factors.

Recent rhetoric from the ECB policymakers has been strongly hawkish. Over the past weekend, ECB policymakers Isabel Schnabel and François Villeroy de Galhau suggested that forceful action was needed against runaway inflation.

The US Federal Reserve has been very aggressive in tightening policy in the face of record high inflation, and its peers including the ECB are widely expected to follow suit.

Among big-four economies, harmonized inflation advanced in Germany and Italy, while France and Spain reported slower rates.

Germany's harmonized inflation accelerated to 8.8 percent in August from 8.5 percent in the prior month. Inflation in Italy climbed to 9.0 percent from 8.4 percent.

Meanwhile, France's inflation slowed to 6.5 percent from 6.8 percent in July. Likewise, Spain's inflation eased to 10.3 percent from 10.7 percent.

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