TLDR
- Euro zone inflation rose to 3.3% in August, up from 2.9% in July, driven by energy prices
- Energy inflation jumped to 14.3%, linked to the Iran war and disruption in the Strait of Hormuz
- Core inflation actually fell to 2.4%, and services inflation eased to 3.0%
- Markets are pricing in a 98.9% chance of a 0.25% ECB rate hike on September 10
- Small and medium businesses face pressure from both high energy costs and rising borrowing costs
Euro zone inflation climbed to 3.3% in August, its highest level since September 2024. The jump was driven almost entirely by rising energy costs, according to data from Eurostat released Tuesday.
🇪🇺LATEST: Eurozone inflation just surged to its highest level in nearly THREE YEARS.
Inflation jumped from 2.9% to 3.3% in August, marking the sixth straight month above the ECB’s 2% target as the Iran war keeps energy prices elevated.
Core inflation FELL to 2.4%, while… pic.twitter.com/DMaTxXwNh2
— Coin Bureau (@coinbureau) September 1, 2026
Energy inflation hit 14.3% in August, up from 10.3% in July. The increase is tied to disruption in oil and gas markets caused by the war involving Iran and the blockage of the Strait of Hormuz.
Europe imports a large share of its energy needs, making it especially exposed to these supply shocks. Both crude oil and natural gas prices have risen sharply as a result.
Despite the headline number, the underlying picture was more calm. Core inflation, which strips out energy, food, alcohol and tobacco, actually fell to 2.4% from 2.5%.
Services inflation, a key measure watched by the European Central Bank, also dropped to 3.0% from 3.3%. That suggests the energy price spike has not yet spread into the wider economy.
ECB Rate Hike Now Almost Certain
Markets have priced in a near-certain rate hike at the ECB’s September 10 meeting. Data from LSEG shows a 98.9% probability of a 0.25 percentage point increase, which would bring the deposit rate to 2.5%.
The ECB already raised rates to 2.25% in June, its first hike since 2023. That move came in response to inflation pressures building from the Iran conflict.
ECB board member Isabel Schnabel said last week that rates may need to rise further because inflation risks remain. Policymakers have been watching closely to see if energy costs start pushing up wages and services prices over time.
Businesses Already Under Pressure
Economists are warning that another rate hike will add to the strain already being felt across the euro zone economy. Heavily indebted households face higher mortgage costs, and businesses face more expensive borrowing.
Small and medium-sized enterprises are seen as most at risk. For many, higher financing costs could mean putting off or cancelling investment plans altogether.
Joe Nellis, head of economic research at MHA, said the ECB faces a clear trade-off between fighting inflation and protecting economic growth.
The euro zone economy has remained relatively resilient so far, but the combination of high energy bills and tighter credit conditions is expected to test that resilience in the months ahead.
The ECB will meet on September 10, where a rate decision is expected.
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