AIB Bank chief economist Mr Austin Hughes said the ECB would not be "too concerned" about the latest jump in the euro-zone number, which was largely attributable to a low "base" created by declining oil prices last summer. The latest rise had been flagged by ECB president Mr Wim Duisenberg.
Euro-zone inflation crept back above the European Central Bank's (ECB's) 2 per cent target during August, according to the latest figures from EU statistical agency Eurostat.
Inflation in the 12-member currency area registered 2.1 per cent for the month, up from 1.9 per cent in July, but down on the 2.4 per cent seen one year previously.
Inflation in the Republic, at 4.5 per cent, remains the highest in the 12-member euro zone. The lowest rate was seen in Germany, where annual inflation was just 1 per cent.
Mr Hughes believes the ECB may be be more troubled by core inflation, which rose to 2.5 per cent in August on the back of sharp increases in the price of services. This measure, which excludes food and energy prices, is considered less volatile than the "headline" rate. Mr Hughes expects this rate to see a "dramatic deceleration" in coming months however, thus reducing pressure on the ECB to reduce interest rates on that basis.
In general, Mr Hughes sees the ECB shifting its focus away from inflation and on to the seeming inability of the euro-zone states to shrug off the sluggish economic growth that has reigned of late. He is predicting a rate cut of up to 50 basis points to come as early as November as the ECB addresses the growth issue.
AIB group treasury senior economist Ms Geraldine Concagh is also expecting a rate cut, either later this year or in early 2003. She argues, however, that the ECB will continue to react largely according to inflation levels rather than growth rates.
The Republic was one of three euro-zone states where inflation rose on an annual basis during August. Spain, where inflation rose from 2.1 per cent to 3.7 per cent, and Italy, where the rate increased from 2 per cent to 2.6 per cent, were the other two economies to see a rise. On a sectoral basis, the highest annual inflation rate came in hotels and restaurants, where prices increased on average by 4.7 per cent.
