Key Takeaways
- Eurozone inflation is expected to rise to 3.0% in August, while core inflation is seen rising to 2.6% year over year.
- Economists still see little evidence of second-round effects from high energy prices, as wage growth remains contained.
- The European Central Bank is expected to raise rates by 0.25 percentage points on Sept. 10.
Preliminary data due on Sept. 1 is expected to show that eurozone consumer prices in August were 3.0% higher than a year earlier, according to FactSet consensus estimates. That is up from July’s final inflation reading of 2.9%, and above the European Central Bank’s medium-term inflation target of 2%.
Core inflation, which excludes volatile components such as energy and food costs, is expected to rise to 2.6% year over year in August, up from 2.5% in July.
Some expect an even sharper rise in inflation: Goldman Sachs Research sees overall inflation at 3.36% year over year in August. Goldman’s analysts expects services inflation to remain unchanged at 3.3% in August. The main driver of the expected increase in overall inflation will continue to be energy, which Goldman Sachs sees rising 14.4% year over year in August, up from 10.3% in July.
DekaBank’s estimate is also above the FactSet consensus, forecasting inflation rising to 3.3% in August, while it expects core inflation of 2.5%. “The main driver of headline inflation is higher energy prices. Price pressures in the services sector also remain stubbornly high. However, this should not be seen as a second-round effect, as there are no signs of an acceleration in wage growth,” says Joachim Schallmayer, head of capital markets and strategy at Deka. Second-round effects emerge when higher prices feed into wages and subsequently trigger further price increases.
“Rather, energy costs and delayed price adjustments are likely also embedded in services inflation and explain a large part of the persistently high inflation,” Schallmayer says.
When Are the Next ECB Rate Decisions in 2026?
- Sept. 10, 2026
- Oct. 29, 2026
- Dec. 17, 2026
What to Expect for the ECB Rate Decision on Sept. 10
“With European inflation sitting firmly above the European Central Bank’s targeted level, expectations are increasing for interest rate increases,” says Michael Field, Morningstar’s chief European markets strategist. “Polling of economists is pointing to an almost nailed-on 25 basis point increase at the next meeting to 2.5%.”
Swap markets—derivative markets where investors trade expectations for future interest rates—currently price in a 96.6% probability of a 25-basis-point rate hike in September, while another increase of the same size is priced in for the spring.
Expectations for a September move were further reinforced by comments from ECB executive board member Isabel Schnabel, who made a clear case for another rate increase. “At the current policy rate, inflation is unlikely to return to target over the medium term, and therefore further tightening will be necessary,” Schnabel told Bloomberg last Wednesday.
What Is the Inflation Outlook for the Remainder of 2026 and 2027?
Deka’s Schallmayer expects energy prices to remain high over the coming months, meaning that inflation will remain above 3% this year and could peak at around 3.5%. “In the spring, however, inflation should fall relatively quickly due to base effects. Headline inflation should return to around 2% and could fall below 2% by the summer. Core inflation should then move toward 2%.”
Goldman Sachs expects headline inflation to peak at 3.4% year over year in the fourth quarter of 2026. Core inflation will peak at 2.7% year over year in the first quarter of 2027, before gradually declining to 2.0% in the fourth quarter of 2028, the economists forecast. “The risks, however, remain somewhat to the upside bearing in mind renewed geopolitical tensions, rising refined products prices and recent moves higher in gas prices.”
Could There Be Another Gas Price Shock?
Schallmayer expects oil prices to remain elevated for now but to gradually decline as supply routes adjust to the disruption in the Middle East. “We don’t expect any significant easing in oil prices, but with every month that the current situation in the Middle East persists, prices could gradually move lower,” he says.
He expects Brent oil to trade around USD 80 per barrel by year-end and around USD 70 in 12 months. “The key risk remains a renewed escalation of the war in Iran involving attacks on energy infrastructure. That would put us in a different risk scenario, and oil prices could quickly move back above USD 100 and potentially significantly higher.”
European gas markets pose another inflation risk this winter. Morningstar expects EU gas storage to stand at just 69% on Nov. 1, an all-time low for that point in the year. This would leave Europe more reliant on LNG imports and facing stronger competition from Asian buyers for flexible US LNG cargoes. In a cold winter, Morningstar estimates that European TTF gas prices could rise to EUR 90-120 per megawatt-hour, from around EUR 68 currently.
“We don’t expect gas prices to reach the all-time highs of 2022, as the disruptions caused by the war in Iran are much smaller and the EU has relaxed its early-November storage target,” Morningstar analysts Tancrede Fulop and Andrea Burigana say. But they expect Europe’s gas balance to remain tight through 2027, with a more substantial increase in global liquefied natural gas supply expected to put downward pressure on European gas prices in 2028.
