Inflation across the eurozone ticked up in August, surpassing expectations but staying close enough to the European Central Bank’s 2% target to avoid causing too much concern—at least for now.
According to the latest flash estimate from Eurostat, annual inflation in the euro area rose to 2.1% in August, nudging higher from 2.0% in July. Economists had expected no change.
On a monthly basis, prices were up 0.2%, rebounding from a flat reading the previous month.
Core inflation—which strips out energy, food, alcohol and tobacco—held steady at 2.3% for the fourth month in a row. This suggests underlying price pressures are proving resilient, but not accelerating in a way that would trigger alarm.
Services inflation cools slightly
Looking at the key components, food, alcohol and tobacco prices climbed 3.2% year-on-year, down slightly from July’s 3.3%, while services inflation cooled marginally to 3.1%.
Meanwhile, non-energy industrial goods held steady at 0.8%, and energy prices continued to decline, albeit at a slower pace, falling 1.9% compared to 2.4% in July.
Among eurozone members, there’s still wide variation. Estonia recorded the highest annual inflation at 6.2%, followed by Croatia at 4.6%, while France and Cyprus saw the lowest rates at 0.8% and -0.1% respectively.
Month-on-month, Belgium stood out with a 1.5% price jump. In contrast, several countries experienced deflation: Greece saw a decline of 0.6%, Lithuania and Finland were down 0.3%, Latvia and Italy dropped 0.2%, and Portugal edged 0.1% lower.
How will the ECB move?
The European Central Bank last met in July, when it decided to pause rate cuts after eight consecutive reductions.
President Christine Lagarde said the ECB was ‘in a good place’, but also struck a cautious tone, highlighting uncertainties linked to trade policy and global supply chains.
With inflation showing a broadly steady trend near the ECB’s target and the eurozone unemployment rate remaining at a record-low 6.2%, markets are not expecting any shift in interest rates at the next Governing Council meeting on 10 September.
The deposit facility rate is likely to stay at 2%, as the ECB maintains its wait-and-see stance.
Market jitters deepen amid political risks
European markets suffered on Tuesday as equities came under pressure, with political uncertainty adding to investor nervousness. Both France and the Netherlands are wrestling with domestic instability.
Germany’s DAX fell 1%, slipping below the 24,000 mark to levels not seen since early August. Italy’s FTSE MIB and Spain’s IBEX 35 followed suit, while France’s CAC 40 remained flat.
The broader Euro STOXX 50 was down 0.5%, with the Euro STOXX 600 also retreating 0.6%.
Among individual stocks, LVMH bucked the trend, gaining 3.2% after HSBC raised its price target to €625 from €535.
On the downside, Siemens fell 2.9% and ASML dropped 2%.
In currency markets, the euro slipped 0.7% to $1.1630, reflecting investor preference for the dollar as risk appetite faded.
Meanwhile, precious metals stole the spotlight. Gold soared above $3,500 per ounce for the first time ever. Silver also extended gains, climbing above $40 per ounce, its highest level since September 2011.