Eurozone Inflation Jumps to 3.3%, an ECB Rate Hike Now Looks Likely

Inflation in the eurozone picked up again in August, with prices for goods and services running 3.3% above a year earlier, up from 2.9% in July. Eurostat’s flash estimate leaves the European Central Bank well above its 2.0% target, and it also leaves very little suspense around next week’s meeting.

Economists had been split on the details, but not on the direction. Reuters’ poll landed exactly on 3.3%, while the German state banks LBBW and Helaba had seen lower numbers. Markets are already leaning hard toward a move, with a key rate of 2.5% priced in. Commerzbank’s Vincent Starmer called the hike a certainty after the new data, and KfW’s Stephanie Schönwald said the reading should be enough for the ECB to “take another step up in September.”

The awkward part is the mix underneath the headline. Energy prices were 14.3% higher than a year earlier, and the pressure there intensified again. Industrial goods rose 1.2%. Services eased from 3.3% to 3.0%, which pulled core inflation excluding energy and food down to 2.4%. That gives policymakers two stories at once: the broad number is heating up, while the cleaner measure is cooling off.

Austria shows the same split. Inflation there rose to 3.2% in August from 2.8% in July, with energy up 10% year on year and services up 4.3%. Food, tobacco and alcohol barely moved, helped by a VAT cut on selected staple foods that began on July 1. Core inflation was 3.0%, and the EU-harmonised figure came in at 2.9%.

The ECB itself has been telling a familiar story: this is a supply shock, not a demand boom. Its economists say the current surge stems mainly from energy disruptions tied to the war in the Middle East and the closure of the Strait of Hormuz. That matters because supply shocks hit inflation and growth in opposite directions, which is why the central bank has been cautious. Thursday’s meeting will bring fresh forecasts, and if those projections still show inflation sticking around, another rate rise looks close to unavoidable.