Key facts
- Euro zone inflation increased to 3.3% in August, up from 2.9% in July.
- The rise in inflation was primarily attributed to increased energy costs.
- Core inflation, which excludes volatile food and fuel prices, decreased to 2.4% in August.
- The European Central Bank is widely expected to raise its deposit rate to 2.50% on September 10.
- Financial markets are anticipating potential further rate hikes in the coming year.
Euro zone inflation climbed back above 3% in August, reaching 3.3%, driven by escalating energy costs, according to data from Eurostat. This marks an acceleration from July's 2.9% inflation rate, largely due to rising crude oil and natural gas prices, as well as increased refinery margins.
Despite the headline increase, underlying price pressures remained subdued. Core inflation, which excludes volatile food and energy prices, eased to 2.4% from 2.5% in July. Growth in services prices, a significant component of the consumer price basket, also slowed to 3.0% from 3.3%.
These figures align with the European Central Bank's projections and solidify expectations for a widely anticipated interest rate hike to 2.50% on September 10. Financial markets have largely factored in this move, shifting their focus to the future path of interest rates.
While many economists and policymakers believe the ECB may hold rates at a neutral level after the September hike, citing a relatively soft labor market and moderate wage growth, financial markets are pricing in two additional rate hikes over the next year. This outlook is influenced by the ongoing conflict in Iran, which continues to exert upward pressure on energy prices, and the broader economic resilience to geopolitical and economic stresses.