Eurozone inflation ticks up in August, in line with expectations

Eurozone inflation picked up to 2.1% in August from 2.0% in July, in line with expectations, but remained close to the European Central Bank’s 2% target, adding to market bets that the central bank will keep interest rates unchanged in the near term.

Underlying inflation, excluding the most volatile components and closely watched by the policymakers, was unchanged from the previous month at 2.3% but disappointed expectations for drop to 2.2% in August.

Easing drag from lower energy costs and rise in unprocessed food prices were mainly behind August’s numbers.

The August data contribute to the ECB’s expectations for inflation fluctuating around target in coming months, as still strong growth in the prices of goods and services would be partially countered by moderating energy prices.

The recent moderation in price growth has reinforced expectations that interest rates will remain steady for the rest of the year, even as policymakers continue to weigh the need for additional easing beyond the 2% of cuts already implemented since mid-2024.
That discussion could intensify in early 2026, when inflation is projected to dip below target-albeit temporarily-reviving concerns that persistently low price growth might take hold, echoing the pre-pandemic era.

The ECB will next meet on September 11, and economists widely expect the policymakers to keep deposit rate unchanged at 2%.