European consumers are facing higher prices when going to the supermarket.
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Euro zone inflation edged higher to 2.1% in August, according to the latest flash data from statistics agency Eurostat on Tuesday.
Economists polled by Reuters had expected the rate to remain unchanged from July, at 2%.
Core inflation, which strips out more volatile food, energy, alcohol and tobacco prices, was unchanged from 2.3% in July. The closely watched services print meanwhile was slightly lower in August, at 3.1% compared to 3.2% in July.
At 2.1%, the euro zone’s latest inflation rate is just slightly higher than the European Central Bank’s target of 2%.
The euro was down 0.6% against the dollar, at $1.1640. The pan-European Stoxx 600 was trading 0.7% lower Tuesday morning.
The central bank held its key interest rate at 2% in July and is expected to maintain that stance when it next meets in September, according to a majority of economists polled by Reuters.
The EU’s trade deal with the U.S., signed in late July, has removed uncertainty over tariffs although there are some concerns that the blanket 15% duty of EU exports to the States could still weigh on economic activity.
The euro zone eked out 0.1% growth in the second quarter, compared to the previous quarter, Eurostat data showed in late July.
ECB rate pause likely
The slight uptick in headline inflation in August is unlikely to make much difference for policymakers at the ECB when they next meet, Andrew Kenningham, chief Europe economist at Capital Economics, noted Tuesday.
ECB policymakers “look certain to leave interest rates unchanged at next week’s meeting and probably for several months beyond that,” he said in emailed analysis.
“Most importantly for the ECB, services inflation also came down a touch, from 3.2% in July to 3.1% in August. This is the lowest rate of services inflation since March 2022 and should provide some reassurance for policymakers that domestic prices pressures are continuing to subside,” he said, predicting the services inflation would fall further in coming months as labor market conditions ease.
“We will preview the ECB’s forthcoming meeting later in the week but in short the Bank is likely to leave rates on hold for some time,” he said.
Irene Lauro, euro zone economist at Schroders, agreed that the ECB would take its time when considering the trajectory for interest rates.
“With trade uncertainty easing, the Eurozone recovery is set to gain momentum as firms ramp up borrowing and investment. In this environment, the ECB is likely to hold rates cautiously steady in September. The resilience in core inflation supports our view that policy normalisation has ended, and the ECB will closely monitor growth dynamics before making its next move,” she said in emailed comments.
