Eurozone Inflation Holds Near Target, Strengthening Case for ECB Pause

Eurozone consumer prices picked up slightly in August but stayed close to the European Central Bank’s (ECB) target, reinforcing expectations that policymakers will hold rates steady at their September meeting.

Inflation Data

A flash estimate from Eurostat showed the headline consumer price index (CPI) rose 2.1% year-on-year in August, compared with 2.0% in July. The figure aligned with market expectations and suggests inflation remains under control despite lingering global trade and geopolitical pressures.

The services sector, closely watched by the ECB due to its role in domestic price stability, recorded a modest slowdown. Services inflation eased to 3.1% from 3.2% in July, marking the lowest level since March 2022 and signaling that underlying domestic price pressures are cooling.

Meanwhile, core CPI – which strips out volatile food and energy prices – ticked up slightly to 2.3%, matching July’s pace but surpassing economists’ projection of 2.2%.

Policy Implications

The ECB left its key interest rate unchanged at 2% in July, ending a year-long cycle of cuts. President Christine Lagarde described policy as being in a “good place” but acknowledged that trade tensions and political risks still cloud the outlook.

With inflation close to target, analysts expect the ECB to maintain rates at the upcoming September 11 meeting, while keeping the door open to further reductions later this year or in early 2026 should growth falter.

Economic Outlook

Concerns remain over the Eurozone’s broader economy, which has shown signs of weakening momentum. Some policymakers may push for additional easing later in 2025 to prevent inflation from consistently undershooting the 2% target.

Analysts suggest that while the near-term outlook supports a pause, the autumn debate may reignite if economic data deteriorates further, particularly in the industrial and export-driven sectors.