Eurozone inflation edges higher in August, matching expectations

Eurozone inflation rose to 2.1% in August from 2.0% in July, in line with expectations and staying close to the European Central Bank’s 2% target, reinforcing market bets that rates will remain unchanged in the near term.

Core inflation, which excludes energy and food and is closely monitored by policymakers, held steady at 2.3% compared to July, missing forecasts for a slight dip to 2.2%.

The pickup was mainly driven by easing drag from lower energy costs alongside an increase in unprocessed food prices.

The August data aligned with the ECB’s view that inflation will fluctuate around target in the coming months, as persistent strength in goods and services prices is partly offset by moderating energy prices.

The recent slowdown in headline price growth has strengthened expectations that interest rates will remain on hold through the rest of 2025, though debate continues over whether further easing may be needed beyond the 2% in cuts already delivered since mid-2024. That discussion is expected to intensify in early 2026, when inflation is projected to dip below target, raising concerns over a return to persistently weak price growth similar to the pre-pandemic period.

The ECB’s next meeting is set for September 11, with economists broadly expecting policymakers to leave the deposit rate unchanged at 2%.