European interest rates near their peak

The good news is that the rate of inflation in the euro zone is on its way down. The bad news is that the economy is too, with surveys showing the bloc nearing recession. On September 14th the European Central Bank must decide whether to raise interest rates again. August’s inflation data, released on Thursday, will be critical.

Doves worry that the economy is weakening too fast. But hawks point out that the core inflation rate, at 5,5% in July, is still way above the 2% target for overall inflation. August is unlikely to offer much reprieve there, with data from Germany and Spain showing core inflation to be stubborn. Worse, fuel prices may also have pushed headline inflation a bit higher. Wage growth also remains high and has just accelerated in Italy, where it had previously been lagging behind. A compromise could see the ECB pause rate hikes next month, and reconsider October.