Key Takeaways
- Eurozone headline inflation ticked up to 2.1% year on year in August, in line with expectations.
- Economists expect inflation to stay around the 2% target for the rest of the year.
- European Central Bank unlikely to cut rates on Sept. 11.
Consumer prices in the eurozone increased by 2.1% year over year in August, according to Eurostat’s flash estimate, above July’s reading of 2.0% and in line with expectations of a 2.1% rise.
Core inflation, which shows prices without volatile components such as energy and food costs, rose 2.3% year over year in August, unchanged on July but lower than the expected 2.5%.
This is the last inflation data to be released before the European Central Bank’s Sept. 11 meeting, in which it is expected to hold rates for the second meeting in a row. The ECB has cut rates eight times since 2024, taking the deposit facility rate to 2%.
According to Morningstar’s European markets strategist Michael Field, core inflation was “still within a reasonable range of the central bank’s targeted level.”
“With the labor market loosening somewhat in recent months, this could fall further in the near future,” he says.
What Is Driving Eurozone Inflation?
According to Eurostat’s estimates, food, alcohol and tobacco prices rose by 3.2% in August, compared with a 3.3% rise in the twelve months to July. Services inflation slowed to 3.1% year over year, compared with 3.2% in July, while nonenergy industrial goods prices rose 0.8%, stable compared with July. Energy prices fell 1.9%, compared with a 2.4% fall in July.
The euro and stock markets were little changed following the data release.
Will Eurozone Inflation Stay Near the ECB Target in 2025?
Ulrike Kastens, senior economist at DWS, says that while energy prices have fallen, food is getting more expensive: In particular, the price of unprocessed food has risen by 5.5%.
“Even though the European Central Bank cannot directly influence food prices, a sustained rise in the price of everyday goods could lead to higher inflation expectations and wage demands. That would not be in the central bank’s interest at present,” Kastens says. While there are signs of easing in services inflation, the appreciation of the euro has not yet been reflected in prices for durable consumer goods, she adds.
She expects headline inflation to hover around the ECB’s 2% target for the rest of 2025.
“We do not expect any shocks over the remainder of the year. The rate could temporarily fall below 2%, which will mainly depend on energy prices,” Kastens says.
“Due to the weak economy and easing wage pressure, inflation in the monetary union is unlikely to increase further in the short term,” says Christoph Swonke, analyst at DZ Bank. “In addition, the euro is currently flexing its muscles, particularly against the US dollar, and oil prices are low. The inflation rate is therefore likely to temporarily slip below the 2% mark.”
ECB Interest Rate Decision: Why No Cut Is Expected in September
“This could then tempt the ECB’s monetary policymakers to lower interest rates further,” Swonke adds. “However, we do not expect any easing measures to be announced at next week’s central bank meeting. The ECB considers itself to be too well-positioned with its current course.”
DWS’s Kastens says that the ECB is likely to feel vindicated by August’s inflation data. She does not expect changes of key interest rates at the meeting next week.
The ECB’s next monetary policy meeting will take place in Frankfurt on Sept. 11. Markets are not expecting rate cuts at the meeting, and chances of another rate cut later in the year are also diminishing. The ECB kept interest rates unchanged at its monetary policy meeting on July 24.
FAQ: Eurozone Inflation
What is the Eurozone inflation rate in August 2025?
Eurozone headline inflation rose to 2.1% year on year in August, according to Eurostat’s flash estimate.
What is the difference between headline and core inflation?
Headline inflation measures the total change in consumer prices, including volatile items like food and energy. Core inflation excludes food and energy, providing a clearer picture of long-term inflation trends.
Why is core inflation important for the ECB?
The ECB monitors core inflation closely because it reflects underlying price pressures, helping policymakers decide whether to raise, cut, or hold interest rates.
Will the ECB cut interest rates in September 2025?
Analysts expect the ECB to keep rates unchanged at the Sept. 11 meeting, as inflation remains close to the 2% target and wage growth is slowing.
What factors are driving Eurozone inflation right now?
In August 2025, food prices rose by 3.2%, services increased by 3.1%, while energy costs fell by 1.9% compared to a year earlier. This mix shows persistent food inflation despite lower energy prices.
What is the inflation outlook for the rest of 2025?
Economists forecast that Eurozone inflation will hover around the ECB’s 2% target for the remainder of 2025, with the possibility of dipping below 2% if energy prices stay low.
How does Eurozone inflation affect markets and the euro?
Stable inflation near the ECB’s target usually supports the euro and reduces volatility in bond and equity markets. In August’s release, markets reacted with little change.
