ECB vs. inflation

Inflation rises in the eurozone – interest rate hike more likely

Inflation in the eurozone is rising to 3.3 percent annually, according to the latest statistics from Eurostat.

The fact that energy prices have increased by 14.3 percent since August last year contributed to the inflation outcome. Excluding rapidly fluctuating energy and food prices, the so-called core inflation was 2.4 percent, slightly lower than in July. This is also above the European Central Bank's (ECB) target of 2 percent.

“With inflation still rising, it is almost certain that the ECB will raise interest rates at next week's meeting,” Oxford Economics senior economist Leo Barincou told Euronews.

Economists doubt hike despite inflation shock

Inflation in the euro area rose in August to the highest level in almost three years and now the market is fully pricing in the ECB raising interest rates by 25 basis points next week. But Bloomberg economist David Powell disagrees.

Although overall inflation in the EMU rose from 2.9 percent in July to 3.3 percent at an annual rate, core inflation – where volatile components such as food and energy are excluded – unexpectedly decreased to 2.4 percent.

“This difference reinforces our view that the ECB is unlikely to tighten monetary policy as much as financial markets are now pricing in,” writes David Powell. If the energy price shock is prolonged, another interest rate hike could still be on the cards in December, he adds.