A year ago, across the euro area, the clatter of hatches being battened down rang out as the prospect of escalating inflation and higher interest rates loomed.

Nine interest rate increases later, the peak of the shock accelerated by the Russian invasion of Ukraine, has well passed.

Inflation topped out at an historically high annual rate for the euro of 10.6% in October 2022. The latest estimate out this week for August was a rate of 5.3%, unchanged from July.

In Ireland, that EU-wide measure of inflation, the Harmonised Index of Consumer Prices, ticked up in August to 4.9% from 4.6% in July.

The Consumer Price Index (CPI) measure peaked at 9.2% last October. The CPI figure for August will be published next week.

So, is that it?

Has inflation been knocked on the head?

Will it continue to gently drift back down to the Goldilocks rate of 2%?

Maybe. Maybe not.

The data from August is mixed. Some countries, like Ireland, saw their annual inflation rates go up. Some big economies, like France, did too. Other countries, like the Netherlands, and Germany to a lesser extent, saw theirs fall.

Unfortunately, where inflation – and therefore interest rates – go from here is far from obvious.

In fact, Isabel Schnabel, a member of the ECB’s Executive Board, said in a speech this week that members of the bank’s own panel of professional forecasters are at odds with each other’s predictions of where inflation is likely to go from here at a rate that’s twice the historical average going back to 1999.

The factors behind inflation remaining high and possibly going higher include higher wages, companies holding on to higher prices and profit margins even when their costs come down and new so-called supply-side shocks.

These were highlighted by our own National Competitiveness and Productivity Council in a recently published bulletin. The NCPC pointed out that climate change had and was likely to continue to deliver “shocks” that paradoxically shouldn’t surprise us as “shocks” any much longer.

This summer, a drought in Spain had a severe impact on the olive crop. According to data collected by the International Olive Council, the result has meant the price of olive oil globally has almost doubled since January.

In that same speech by Isabel Schnabel, other climate-related risks are highlighted like the current low level of water in the Panama Canal. It’s causing the equivalent of an international shipping traffic jam and “new supply chain disruptions”.

According to Schnabel “…these factors are posing significant risks to food prices and inflation more broadly. While a few food commodity prices have already increased sharply in recent months, most of the effects are likely to become apparent only in 2024.”

On the other side of the equation, indicators of what managers in manufacturing and service businesses expect over the next few months have been negative.

The German economy seems to be going through a tough patch with the lingering effect of higher energy costs hampering manufacturing.

The cost of loans to both households and businesses have unambiguously gone up. But this effect may take a while to filter through, particularly when you consider the higher proportion of fixed mortgages today.

Also, as has been pointed out by the ECB on several occasions and has been highlighted by another German economist, Isabella Weber, the dominance of some big firms in certain markets means that even when costs come down, prices don’t necessarily follow.

That’s because firms act to maximise their profits based on elevated prices. It’s rational behaviour, even if it frustrates the hell out of the rest of us.

To complicate matters further, however long it takes for the increases in interest rates to have a real effect (called “transmission” in the jargon) it will all happen at different rates throughout the euro area.

Ireland’s industrial base, dominated by multinationals, operates on a different and often unpredictable planet.

It’s now big enough to sway the euro area numbers on GDP and industrial production. Numbers that can often influence views on where inflation is going.

Then there’s the price controls governments like Spain have introduced, which may lead to an underestimation of where inflation is going.

Finally, there’s the continuing good news on the employment front. Usually, when it gets hard for companies to hire the people they want, they have to pay them more. It’s not what’s normally associated with a downward trend of inflation.

The fog of signals on inflation presents a confusing picture.

It also raises doubts both about the effectiveness of interest rate increases to date and the disproportionate effect they are having on certain groups like those attempting to escape sky-high rents by purchasing a property and those unable, for several reasons, to move from mortgages with higher than average variable rates.

Frustration is mounting.

This all means the decision the ECB will make in September will be difficult, finely balanced and closely watched.