Euro zone inflation eases in August but is still above the target

Euro zone inflation rose by 2.2% in August, hitting the lowest level since August 2021. 

Last month’s data were in line with expectations and down from 2.6% in July, suggesting that inflation might be on track to return to a downward trajectory, which was interrupted in the past few months. 

Core CPI, stripped for the most volatile components, ticked down to 2.8% in August from 2.9% the previous month, but remains elevated, while harmonized inflation with other EU member countries (HICP) was unchanged in August at 2.8%. 

Economists were cautiously optimistic about the latest data which shows that inflation eased but is still above the levels the European Central Bank would like to see and expect it to rise again and hit 2.5% by the end of the year. 

This also suggests that interest rates need to be sufficiently high to fight existing price pressures, boosted by strong wage growth. 

From that perspective, the central bank, after delivering its second rate cut last week, may stay on hold in its October policy meeting and will probably go for another rate cut in December.