Eurozone Inflation Hits 2.1% in August, Exceeding Forecasts

Inflation across the euro area edged up to 2.1% in August, surpassing analysts’ expectations, according to flash estimates released by Eurostat on Tuesday.

Economists surveyed by Reuters had projected inflation would remain steady at 2%, the same level as in July.

Core and Services Inflation Details

Core inflation – which excludes volatile items such as food, energy, alcohol, and tobacco – remained unchanged at 2.3%, consistent with July’s reading.

Meanwhile, services inflation, a key metric closely monitored by the European Central Bank (ECB), eased slightly to 3.1%, down from 3.2% in the previous month.

At 2.1%, headline inflation remains marginally above the ECB’s 2% target, keeping the focus on monetary policy decisions.

Market Reaction

The euro weakened 0.6% against the U.S. dollar, trading at $1.1640.
The pan-European Stoxx 600 index slipped 0.7% in early Tuesday trading.

The ECB kept its benchmark interest rate at 2% in July, and most analysts expect no change at the upcoming September meeting.

ECB Policy Outlook

Andrew Kenningham, Chief Europe Economist at Capital Economics, said the modest increase in inflation is unlikely to alter the ECB’s stance:

“The ECB is almost certain to leave interest rates unchanged at next week’s meeting and likely for several months beyond that,” he noted.

Kenningham emphasized that the drop in services inflation to its lowest level since March 2022 indicates easing domestic price pressures.

Echoing this view, Irene Lauro, Eurozone Economist at Schroders, added:

“With trade uncertainties easing, the Eurozone recovery could gain momentum. In this context, the ECB is expected to hold rates steady in September while closely monitoring growth dynamics before taking further action.”