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Eurozone inflation declines but further rate hikes still likely

Only with more sustained drops in inflation can we expect to see peak rates

18 August 2023

The eurozone’s final reading for July’s CPI showed an as-expected decline to 5.3% from 5.5% in June. Nothing much to get overly enthusiastic about in the very short term as this gradual inflation descent from such lofty prior levels is going as most expected. The European Central Bank (ECB) will be pleased to see inflation continue its decline but this might not be enough to stop it hiking the deposit facility rate at next month’s meeting where we should probably expect another 25 bps hike, taking it to the 4% level. Only with sustained drops in inflation after this will we be happy to declare the ECB is at peak rates, but we have to be very close to it now. 

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Charles Hepworth

Investment Director
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