Euro zone inflation rose to 3.3% in August from 2.9% in July, reaching its highest level since September 2024, driven primarily by energy price pressures with energy inflation accelerating to 14.3%. The European Central Bank is now expected to raise interest rates by 25 basis points to 2.5% at its September 10 meeting, with market pricing indicating a 98.9% probability of this hike. This would mark the ECB’s first rate increase since June 2023, when it raised its key rate to 2.25% in response to global inflationary pressures from the Iran conflict. Higher borrowing costs are expected to continue squeezing heavily indebted households, weakening housing markets and making investment more expensive for businesses, particularly SMEs.
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