Eurozone headline inflation jumped to 3.3% in August from 2.9% in July, driven almost entirely by an energy-price surge, while core inflation eased to 2.4%. The split leaves the European Central Bank weighing a hotter headline number against softer underlying price pressure ahead of its September meeting.
Energy drives headline inflation higher
Eurozone headline CPI rose from 2.9% to 3.3% year-on-year in August, above the 3.2% consensus, with prices up 0.4% month-on-month. Energy accounted for most of the acceleration: annual energy inflation jumped from 10.3% to 14.3%. Higher crude oil and natural gas prices, amid continued energy-market disruption linked to the war involving Iran, pushed the acceleration.
Core CPI, which excludes energy, food, alcohol and tobacco, moved the opposite way, easing from 2.5% to 2.4% year-on-year, undershooting the 2.5% forecast. Services inflation slowed from 3.3% to 3.0%, while food, alcohol and tobacco inflation held at 1.2% and non-energy industrial goods inflation firmed from 0.9% to 1.2%.
ECB debate stays open into September
The figures complicate rather than settle the ECB's rate decision due at its meeting on September 10. Softer core and services numbers give doves evidence that domestic price pressure is easing, but the energy shock keeps headline inflation well above target and revives concern that external cost shocks could persist. Markets have widely anticipated a 25-basis-point increase in the deposit rate to 2.50%, which would be the ECB's second hike this year after June.
Policymakers appear to have little appetite for now to signal further hikes beyond September, and economists see a high chance the ECB pauses there. The labour market remains relatively soft, and price pressures have not yet fed into wage growth, reinforcing views that only gentle tightening may be needed. Still, financial markets see two more rate hikes over the next year on the premise that higher energy costs eventually seep into broader price setting, particularly if the war in Iran drags on.
With growth constraints easing and Eurozone manufacturing strengthening, August's data give the ECB no clean reason to abandon its tightening debate. Incoming wage, inflation and staff-projection data will determine whether policymakers treat the energy-driven rise as persistent enough to justify a further move.
Sources: ActionForex, Economic Indicators News, Economy News
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