Inflation in the Eurozone increased in August, reinforcing expectations for the European Central Bank to maintain its current interest rates.
The European Central Bank (ECB) has confirmed its projection for inflation to hover around the target of 2% in the coming months, as the inflation rate in the eurozone remained at 2.1% in August. This figure represents a slight increase from 2% in July.
Energy prices, which fell by 1.9% in August, contributed less to the overall inflation rate than they did in July, when they dropped by 2.5%. Conversely, food, alcohol, and tobacco price rises eased slightly to 3.2% in August, down from 3.3% the previous month.
Core inflation, which strips out volatile energy, food, alcohol, and tobacco prices, held steady in August at 2.3%. This indicates that the underlying inflationary pressures in the eurozone economy remain relatively stable.
ECB board member Isabel Schnabel has argued that risks to inflation are skewed towards higher readings. She sees no risk of price growth getting stuck under the target due to healthy economic growth and trade turmoil. Schnabel also suggests that the ECB can tolerate moderate deviations of inflation from the target in either direction.
ING economist Bert Colijn anticipates a potential "insurance" cut either at the end of the year or early 2026 to signal that persistent undershooting of inflation will not be tolerated. Some market participants share this sentiment, with analysts predicting the level of inflation rate would remain unchanged at 2%.
However, some southern European members of the ECB argued for further interest rate cuts beyond the already implemented multiple 0.25 percentage point reductions since mid-2024. As of September 2025, the ECB has kept rates steady at 2.0% with no current move towards additional cuts. No specific current ECB members are publicly named as advocating further easing at this time.
Despite these debates, markets expect steady interest rates in the coming months. The rise in inflation reinforces expectations that the ECB will keep rates unchanged at its next monetary policy meeting on Sept. 11.
The rise in inflation was driven by a rise in unprocessed food prices and a smaller drag from lower energy costs. Services price increases were similarly down to 3.1% from 3.2% in August.
The ECB's primary focus, price growth, has slowed sharply in recent years but has been on target for months. Schnabel acknowledges that fine-tuning inflation to always be at 2% is not possible in a shock-prone world. Nonetheless, the eurozone's inflation rate remains within the ECB's target range, providing a stable economic environment for businesses and consumers alike.
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