Euro area inflation decreased in August to its lowest level since mid-2021, but with sticky services inflation

Euro area inflation decreased markedly in August to its lowest level since mid-2021 according to Eurostat ’s flash estimate (2.2% Y/Y from 2.6% in July, in line with consensus expectations) . This drop was mainly driven by energy prices, which retreat ed from +1.2% Y/Y to -3.0%. Core inflation remained stable at 2.8% Y/Y and has been broadly unchanged since March . Services inflation surprised to the upside to 4.2%, highest pace since September 2023, while Non-Energy Industrial Goods continued to de cline , to 0.4% Y/Y , from 0.7%. By country: German inflation surprised to the downside, to 2.0% Y/Y from 2.6% and vs. 2.2% expected. S ervices inflation was unchanged in August at 3.9% for the fourth month in a row, while goods price inflation dropped to zero. Energy prices decreased sharply from a year earlier. French inflation continued to decrease in August, to 2.2% after 2.7% v in July , lowest pace in 3 years , but slightly higher than consensus expectations (2.1%) . Services prices accelerated to 3.1% after 2.7% , due to " O lympic effects" in transport services and accommodation , while energy prices were sharply down due to base effects . Italy, the country with the lowest inflation among the big 4 countries of the Euro Area, has registered a decline to 1.3% in August from 1.6%. This is mainly due to energy prices deceleration, despite an increase in regulated tariffs this month. Service prices have accelerated as in the rest of the region, while non-energy industrial goods' prices have slowed down. In Spain, August inflation has declined significantly to 2.4% from 2.9% in July, below consensus expectations (2.5%) . With no details by component s at this stage, the national statistical office said that the main factors explaining this change are the deceleration of fuel and food prices. This CPI report is a mixed bag for the ECB , but it comes after positive news from negotiated wages and inflation surveys, market and consumer based. While s ervices inflation stickiness - service inflation is still more than twice as high as its 1999-2019 average - will not prevent a cut in September, it will bolster the "cautious" camp in the ECB. We stick our view of 2 more rate cuts this year (September, December) and 4 in 2025.