Eurozone Inflation Hits 3.3% as Energy Costs Surge

Annual inflation in the eurozone rose to 3.3% in August, up from 2.9% in July, marking the highest level of 2026 and the highest figure in nearly three years. According to Eurostat, the acceleration was primarily driven by energy prices, which jumped 14.3% annually. This surge is linked to an energy supply shock caused by the war in Iran, the closure of the Strait of Hormuz, and renewed hostilities between the United States and Iran, including U.S. strikes against targets of the Islamic Revolutionary Guards Corps.

While headline inflation climbed, core inflation—which excludes volatile food and energy prices—unexpectedly declined to 2.4% from 2.5%. This suggests that energy spikes have not yet triggered broader second-round effects on wages or services. Member state data showed significant variance, with Lithuania recording the highest inflation at 5.8% and Estonia the lowest at 1.3%. Bulgaria, in its first year as a eurozone member, saw inflation accelerate to 5.1%.

These developments increase pressure on the European Central Bank to raise its deposit rate from 2.25% to 2.50% during its meeting on September 10. This would follow a previous hike on June 11. While Executive Board member Isabel Schnabel argues that further hikes are necessary to prevent second-round effects, other policymakers like Piero Cipollone have urged caution to avoid economic damage. Market investors have largely priced in a quarter-point increase for next week.