Is the drop in inflation in August sustainable?

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The expected peak for this summer has been crossed. After reaching over 6% last month, inflation fell below this level again in August. A decrease attributable to the fall in the price of petroleum products. Enough to cast doubt on its durability.

According to INSEE, inflation fell in August. A first in over a year. Note that this does not mean that prices fell between July and August. On the contrary, the INSEE notes an increase, in one month, of 0.4%. On the other hand, compared to last year’s prices, the rise is no longer, like last month, 6.1% but 5.8%.

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From this point of view, we can say that the Minister for the Economy, Bruno Le Maire, and the Government spokesman, Olivier Véran, were right when they claimed in recent days that we were at the peak of inflation. But one question remains: how will the curve evolve in the coming months? Have we reached the Larzarc plateau, the Ballon d’Alsace or the Ecrins massif? And if we are in the Ecrins massif, what new peak awaits us and when will we finally get out of it?

To watch closely: the price of a barrel of oil and the euro/dollar exchange rate

Because, in reality, we do not know if this drop in inflation in August will be sustainable. Because this slowdown in inflation is linked to the drop in energy prices. Decrease that, furthermore, only affects the prices of petroleum products (fuel, heating oil). Everything will depend, therefore, in the coming months on both the evolution of the price of a barrel of Brent and the euro/dollar exchange rate, since oil is paid for in greenbacks.

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Another pending question: what will be the impact of the announced end of general State aid to households to reduce the impact of rising energy prices (gas and electricity rate shield, fuel discount)? It should also be noted that companies have suffered to a greater extent the consequences of the rise in energy prices, as they have not benefited from the broad umbrella of the State.

Having increased their production costs very substantially, they gradually revised their selling prices upwards. That is why the inflation of food products increased in August (+7.7% annual). The same occurs with manufactured goods, which present prices 3.5% higher than those of August 2021, compared to 2.7% in July.

No withdrawal neither in Italy nor in Germany

This drop in inflation in August is, however, good news. Especially since the decline is far from general in Europe. The average rise in prices over a year in the euro zone even crossed a level this month not seen since the creation of the single currency (+9.1%).

And if inflation is falling in Spain and Germany, it is picking up quite clearly. As for Italy, it broke a new record this month, with a level of price increase (+9%) not seen since… 1985.

Author: pierre kupferman
Source: BFM TV

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