09:13 AM EDT, 08/29/2024 (MT Newswires) -- According to provisional figures from the German Statistical Office released Thursday, inflation fell significantly from 2.3% y/y in July to 1.9% y/y in August and was as such below 2% for the first time since March 2001, noted Commerzbank.

This decline of almost half a percentage point is largely due to the development of energy prices, which were 5.1% lower in August than a year ago, said the bank. In July, this year-on-year comparison was at -1.7%. If energy prices and food prices, which are also often very volatile, are excluded, the (core) inflation rate has also fallen.

However, with a fall from 2.9% in July to 2.8% in August, the decline was significantly lower. In addition, the core rate is still well above the European Central Bank's (ECB) target of 2%.

The lower core rate is due to goods prices, whose inflation rate has fallen significantly from 1.5% to 1.0%. By contrast, the year-on-year rate for service prices was still at just under 4% and continues to be driven by the sharp rise in wage costs.

Given the likely further significant rise in wages, service prices are likely to continue rising "sharply," stated Commerzbank. As the price increases at the preliminary stages -- producer prices for intermediate and consumer goods as well as import prices -- indicate that the rate of inflation for goods will soon reach its low point, the bank assumes that the core inflation rate will hardly fall in the coming months and will even tend to rise again slightly towards the end of the year.

Because of the significant fall in energy prices in the final months of last year, the year-on-year rate of energy inflation is also likely to rise again from October onwards. This would put an end to the inflation rate's dip below the 2% line, added Commerzbank.

The national figures available so far -- for Spain, Belgium and Ireland in addition to Germany -- support the bank's forecast that the inflation rate in the eurozone also fell "significantly" in August and, at an estimated 2.1%, was only slightly above the ECB target.

This will make it easier for the doves in the ECB Governing Council to achieve a further reduction in the key interest rate at the meeting the week after next, according to Commerzbank.