There are several signs that inflation could remain elevated in the Eurozone as winter approaches. The latest data shows that year-on-year inflation in August reached 3.3%, compared to 2.9% in July, accelerating to the highest value in three years. This increase is mainly explained by the aggressive evolution of energy prices, although underlying inflation has slightly decreased from 2.5% to 2.4%. Although underlying inflation indicators continue to show little evidence of second-round effects, meaning that price increases are truly taking root in the economy, it is difficult to be optimistic for the coming months.
Fuel prices remain high, with diesel on the international market more than doubling compared to a year ago. The combined effect of the paralysis of the Strait of Hormuz and the destruction of refineries in the Middle East and Russia suggests that the situation would be difficult to reverse quickly, even if military conflicts ended. Furthermore, strategic reserves of oil and refined products are historically low, and natural gas in Europe is trading at three-year highs. Gas storage levels are around 65%, well below the average of 88% for this time of year, which could cause supply difficulties and even higher prices if winter is harsh.
In the food sector, there are fears that the El Niño phenomenon could be particularly severe this year, and the escalation of wheat prices is already certain, affected by the closure of Black Sea ports. On the political front, the article notes that it is plausible that Donald Trump will adopt an even more aggressive stance on tariffs, immigration and foreign policy to leave a legacy in the second half of his term, knowing he cannot be re-elected.
The article warns that, if inflation continues to rise as the end of the year approaches, it becomes likely that this factor will influence wage negotiations for 2027. It is in this scenario that supply shocks would transform into more structural inflation.
