Eurozone inflation jumps to 3.3 percent as energy rises 14.3 percent

Euro-area annual inflation rose to 3.3 percent in August from 2.9 percent in July, Eurostat said in its 1 September flash estimate. That is the highest reading since September 2023 and well above the European Central Bank's 2 percent target. The print matched the Bloomberg consensus and a Reuters poll.

Energy did the damage. Energy prices were up 14.3 percent on the year after 10.3 percent in July, the fastest rise since January 2023, when Europe was still absorbing the shock of Russia's full-scale invasion of Ukraine. Kamil Kovar at Moody's Analytics said the August jump was broad: transport fuel, gas and now electricity.

Services inflation cooled to 3.0 percent from 3.3 percent, a four-month low. Food, alcohol and tobacco held at 1.2 percent. Non-energy industrial goods rose to 1.2 percent from 0.9 percent. Core inflation, which strips out energy and food, slipped to 2.4 percent from 2.5 percent and came in below the 2.5 percent forecast.

Among the large economies, Spain accelerated to 4.5 percent from 3.9 percent. Italy rose to 3.2 percent from 2.9 percent. France moved to 2.7 percent from 2.4 percent. Destatis put Germany at 2.9 percent, with German energy up 10.5 percent after 8.3 percent in July.

Why the ECB is expected to move on 10 September

Markets have fully priced a quarter-point increase in the deposit rate to 2.5 percent at next week's meeting. That would be the second ECB rise since 2023 after a pause in July. Christine Lagarde warned in July that the energy shock from the Iran war "could intensify further." Oil has risen more than 15 percent since the start of August as traffic through Hormuz stayed constrained.

The composition of the print matters for the debate inside the Governing Council. A falling core rate gives the doves an argument that the underlying pulse is not running away. A 14.3 percent energy line gives the hawks an argument that waiting will let headline inflation feed into wages and expectations. Lagarde has to pick which number she treats as the signal.

Weights for 2026 show why the mix is awkward. Services are about 46.8 percent of the basket, non-energy goods about 25.2 percent, food 18.9 percent and energy only 9.0 percent. Energy is the small slice that moved the whole index. If Hormuz stays tight, that slice will keep doing so into the autumn.

The bond market already voted

German 10-year yields sat near 3.35 percent, a 2011 high, as the inflation number landed. Bund futures slipped to their lowest since 2011 on 2 September. French OAT futures printed a record low. The inflation surprise and the bond selloff are the same story told in two rooms.

Households will feel it at the pump and in the heating bill before they feel it in the core components the ECB prefers to watch. That gap between the official target and the kitchen table is what makes a September hike politically costly and, on the present tape, still the base case.