- Euro area headline inflation reached 3.3% in August, the highest level since September 2024, as energy inflation accelerated to 14.3% from 10.3%.
- Markets priced a 98.9% probability of a 25bp ECB rate increase to 2.5% at the Sept. 10 meeting, following the central bank’s June hike to 2.25%.
- Core inflation eased to 2.4% from 2.5%, but economists warned that higher borrowing costs will pressure indebted households, housing markets and small businesses.
Quotes
“The ECB faces a dilemma: a trade-off between higher interest rates and economic cost. Higher borrowing costs will continue to squeeze heavily indebted households, weaken housing markets and make investment more expensive for businesses.”
“For SMEs in particular, another increase in financing costs could mean investment plans being indefinitely postponed or abandoned altogether.”