Euro area: Inflation jump supports ECB hike – Commerzbank

According to preliminary data from Eurostat, headline inflation in the euro area jumped to 3.3% in August from 2.9% in July, primarily driven by rising energy prices linked to the Middle East conflict. While the overall inflation rate aligned with market expectations, core inflation—excluding energy, food, alcohol, and tobacco—unexpectedly fell from 2.5% in July to 2.4% in August.

Commerzbank economist Dr. Vincent Stamer notes that businesses in manufacturing and food production are likely to pass on higher energy costs in the coming quarters, particularly given elevated natural gas prices. This dynamic is expected to drive core inflation higher over the course of the next year.

With headline inflation moving further away from the ECB’s 2% target, the latest figures closely align with the ECB staff projections that factor in rate hikes. Consequently, the data strongly signals another interest rate hike by the ECB in September, though further increases after that remain unlikely as inflation is projected to ease next year.