Europe's inflation held steady in August as European Central Bank keeps an open mind on rates

Inflation paused its decline in Europe in August

Annual inflation held steady in Europe in August as food prices raced ahead of falling fuel costs, but there was no clarity about whether the European Central Bank can pause its record series of interest rate hikes.

The consumer price index for the 20 countries that use the euro currency was unchanged at 5.3% from the July reading, supported by food, alcohol and tobacco prices that increased a painful 9.8%, according to official figures Thursday from EU statistics agency Eurostat.

Another key inflation number — so-called core inflation that leaves out volatile fuel and food — also eased in August, falling to 5.3% from 5.5%. That figure will be a key consideration for the ECB in deciding whether interest rates need to go higher, or can remain unchanged to judge their impact on the economy.

Fuel prices fell 3.3% amid flat global oil prices and diminished summer demand for heating fuel.

European Central Bank President Christine Lagarde has said that the interest rate decision at the Sept. 14 policy meeting will depend on incoming data, a shift from a year-long series of meetings where rate increases had been announced ahead of time. The ECB must juggle fighting inflation with higher rates against the impact of costlier credit for consumers and businesses.

Inflation has declined after hitting its peak in October at 10.6%, but the decrease has slowed in recent months and economists say the “last mile” toward returning inflation to the bank's 2% target may be the most difficult.

Recent growth indicators have been weak, while inflation has been steadily falling. Market indicators have suggested that participants are not convinced the ECB will hike again.

The eurozone economy stagnated with zero growth at the start of 2023 and saw a modest rebound in the second quarter, growing 0.3% over the quarter before. In August, the European Commission’s economic sentiment indicator combining measures of business and consumer confidence fell to its lowest reading in 10 years, while purchasing managers' surveys indicate activity is slowing.

A key weakness in the eurozone has been its largest economy, Germany, which the International Monetary Fund forecasts to be the only major economy to shrink this year, down 0.3%.