Eurozone inflation in August exceeded expectations. What to expect from the ECB meeting?

Price growth in the eurozone in August amounted to 2.1%, which is more than experts predicted. However, core inflation, which excludes volatile food and energy prices, remained unchanged compared to July. The European Central Bank will decide on interest rates in September, and the consensus view is that it will leave them unchanged, as in July.

Inflation in the eurozone in August, according to preliminary data, amounted to 2.1% in annual terms, Eurostat reported. Price growth accelerated compared to July (then it was 2%). In addition, it was higher than expected: economists surveyed by Reuters, predicted growth of 2%, as in July.

Core inflation, which excludes food and energy prices, rose at a 2.3% annualized rate, a pace in line with what it was in July. But economists' forecast suggested a slowdown to 2.2%, Reuters wrote.

In August, prices for food, alcohol and tobacco rose the most in annualized terms - by 3.2%, which, however, is slightly less than in July (+3.3%). The second place was taken by the services sector - +3.1%, which is also slightly better than in July. The cost of energy resources decreased by 1.9%: in July prices fell faster (-2.4%).

The highest year-on-year inflation in August was in Estonia - 6.2%, according to preliminary data. Also in the top were Croatia (4.6%) and Slovakia (4.4%). Prices fell slightly in Cyprus (-0.1%), while their growth was lowest in France (0.8%) and Italy (1.7%).

The European Stoxx 600 index was down 0.7% at the time of publication of this text. During trading on Tuesday, it fell to its lowest level in three weeks. German Dax index was losing 1.15%, British FTSE 100 - 0.3%. France's CAC 40 was up slightly within 0.1%.

German 30-year bond yields reached the highest level since 2011, while similar French bonds reached their highest level since 2009, Reuters noted.

Despite exceeding expectations, eurozone inflation remains close to the European Central Bank's 2% target, a statistic in line with the ECB's own forecast that inflation will hover near the target until the end of 2025 as long as weak commodity price growth and softening energy costs curb the still booming cost of services and food, Reuters noted.

The August figure is likely to reinforce the market's view that interest rates in the eurozone will remain unchanged in the near term, the agency writes. The ECB kept rates unchanged in July and is expected to do the same at its September 11 meeting. Moreover, markets expect stability in rates until the end of 2025, although ECB governors still have different views on whether to cut rates further after cutting them by two percentage points from mid-2024, Reuters added.

"Given weak [economic] growth, the persistence of significant risks of a sudden deterioration and the expected US Fed rate cut, the doves on the [ECB] Governing Council may push for another rate cut before moving to pause. But it will be difficult to achieve this, as the arguments in favor of holding rates look convincing," said ING economist Bert Colijn, quoted by the agency.

This article was AI-translated and verified by a human editor