Inflation in the euro area rises to 3.3 percent

The oil price shock due to the Iran war is having an impact on consumer prices in the euro area. Inflation rises significantly to 3.3 percent. This increases the pressure on the ECB to act.

Luxembourg. Inflation in the euro zone rose significantly in August due to high energy prices. In a year-on-year comparison, consumer prices rose by 3.3 percent, according to an initial estimate from the Eurostat statistics office in Luxembourg. In July the inflation rate was 2.9 percent. This means it is well above the price target of the European Central Bank (ECB), which is aiming for annual inflation of two percent in the medium term.

Economists are firmly expecting the ECB to raise key interest rates when it makes its interest rate decision on September 10th. “An interest rate increase at the ECB meeting next week is overdue,” wrote Commerzbank chief economist Jörg Krämer. Many companies are likely to pass on the increase in energy costs to customers.

Stephanie Schoenwald, an economist at the development bank KfW, expressed a similar opinion. “The findings should be enough for the ECB to raise interest rates further in September.” However, she does not see a need for any further interest rate increases as long as energy prices remain the main driver of inflation.

Energy prices are a central driver

The rise in energy prices accelerated again in August. Here Eurostat reports an increase of 14.3 percent year-on-year. The background is the war between Iran and the USA. There is no sustainable opening of the Strait of Hormuz in sight, which means the flow of oil is stalling. Compared to the previous month, the price level in the euro zone rose by 0.4 percent in August.

Inflation has also gained momentum in Germany. In August, rising prices for heating and gas drove the inflation rate to 2.9 percent, as the Federal Statistical Office announced on Monday. Consumer prices last rose even more strongly at the end of 2023.