Euro zone inflation rose 2.1% in August, slightly above expectations and the ECB’s 2% target, flash data from Eurostat showed Tuesday.
Despite the uptick, economists expect the central bank to keep rates steady next week as services inflation, a key gauge of domestic price pressure, eased to 3.1%, its lowest since March 2022.
The euro fell 0.6% to $1.1640, while European stocks slipped early Tuesday. Analysts say the ECB is likely to maintain its cautious stance as growth remains weak despite easing trade uncertainty following the EU-U.S. deal.
Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, held steady at 2.3%, while services inflation, a key measure for the ECB, eased to 3.1% from 3.2% in July, marking its lowest level since March 2022.
“The rise in headline inflation is unlikely to alter the ECB’s stance,” Andrew Kenningham, chief Europe economist at Capital Economics, told CNBC. “Most importantly for policymakers, services inflation edged lower, suggesting domestic price pressures are easing.”
Kenningham projected further declines in services inflation as labor market conditions soften, adding that the ECB is likely to maintain current rates “for several months.”
Economists say the outlook for growth is improving following a late-July EU-U.S. trade agreement that removed tariff uncertainties. However, concerns linger over a blanket 15% duty on EU exports to the U.S., which could weigh on activity, experts say.
Eurostat figures showed the euro area economy grew 0.1% in Q2 compared with the previous quarter, underscoring fragile momentum.
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