Eurozone inflation accelerated sharply in August, reaching its highest level in nearly three years as surging energy costs pushed headline price growth further above the European Central Bank’s target.
Annual inflation across the 20-country euro area rose to 3.3% in August from 2.9% in July, according to preliminary estimates from Eurostat. The reading, which matched market expectations, was the highest since September 2023.
The acceleration increases pressure on the ECB as policymakers weigh another interest-rate increase amid renewed energy-driven inflation.
Energy Inflation Surges to 14.3%
Energy prices were the main driver of the August increase, rising 14.3% from a year earlier, up sharply from 9.2% in July and marking the strongest annual increase since January 2023.
The surge comes amid continued tensions in the Middle East, which have disrupted energy markets and contributed to higher crude oil prices.
Inflation for unprocessed food also accelerated, reaching 5.5% from 4.7% in July, while non-energy industrial goods inflation increased to 1.1% from 0.9%.
Services provided a counterweight to those pressures. Services inflation eased to a four-month low of 3.0% from 3.2%, indicating that the latest acceleration in headline inflation remains heavily influenced by energy.
Core Inflation Eases to 2.4%
Core inflation, which excludes volatile energy and food prices, edged down to 2.4% from 2.5%, coming in below market expectations of 2.5%.
The divergence between headline and core inflation highlights the growing influence of the energy shock on euro-area consumer prices.
Headline inflation at 3.3% now stands 1.3 percentage points above the ECB’s 2% medium-term target.
Inflation Accelerates Across Major Eurozone Economies
Price pressures strengthened across the euro area’s four largest economies.
Germany’s annual inflation rate increased to 2.9% from 2.8%, while France accelerated to 2.7% from 2.4%. Italy’s rate rose to 3.2% from 2.9%.
Spain recorded the strongest inflation among the four, with annual price growth jumping to 4.5% from 3.9% in July.
Markets Price September ECB Rate Hike
The latest inflation data reinforced expectations that the ECB could tighten monetary policy as soon as its September meeting.
Markets are fully pricing a 25-basis-point increase in the ECB deposit rate to 2.5%, as policymakers assess whether higher energy costs could generate more persistent inflationary pressures across the euro-area economy.
The inflation report follows a sharp rise in European government bond yields. Germany’s benchmark 10-year Bund yield recently reached 3.3%, its highest level since 2011, as investors adjusted expectations for European interest rates.
Despite the sharp increase in headline inflation, the simultaneous decline in core and services inflation shows that August’s acceleration was concentrated primarily in energy and selected goods categories rather than reflecting a uniform increase in price pressures across the eurozone economy.
