Euro-area inflation edged higher in August, reinforcing expectations that the European Central Bank (ECB) will keep interest rates unchanged at its meeting next week.
Data released Tuesday showed consumer prices rose 2.1% year-on-year, up slightly from 2% in July, according to Eurostat.
As per a Reuters poll, economists expected the rate to remain unchanged from July, at 2%.
Core inflation, which excludes volatile items such as energy and food, held steady at 2.3%.
Services inflation, a closely monitored category, slowed to 3.1%.
The uptick means headline inflation has moved just above the ECB’s 2% target, adding weight to the central bank’s current stance of holding rates steady.
The euro fell 0.6% against the dollar to trade at $1.1640 following the release.
Equity markets also came under pressure, with the pan-European Stoxx 600 index down 0.7% in early trading on Tuesday.
ECB policy outlook
Officials left the deposit rate unchanged at 2% in July.
At the time, ECB President Christine Lagarde said the central bank was in a “good place,” signalling comfort with both inflation levels and the resilience of the euro-area economy.
The latest figures are expected to confirm that policymakers can extend that pause when they convene on September 11.
Investors remain uncertain whether further rate cuts will be delivered this year, given inflation’s persistence in some sectors and lingering global uncertainties.
The regional numbers masked divergence among member states. Inflation undershot forecasts in France, Italy, and Spain, while German inflation came in slightly above expectations.
Eurostat data also showed that euro-zone output grew 0.1% in the second quarter from the previous quarter, underscoring modest momentum in the bloc’s economy.
Inflation outlook
Despite the latest readings, the outlook for inflation remains mixed.
Finnish Governing Council member Olli Rehn cautioned over the weekend that there are “more downside risks” due to a stronger euro, declining energy costs, and easing core price pressures.
An account of the ECB’s July meeting reflected these uncertainties, with some officials warning that resilient growth and domestic price pressures could keep inflation elevated, while others viewed risks as more balanced.
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