People sunbathe and swim in Naples during the African heat wave on August 4, 2026.
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Pressures on energy prices pushed eurozone inflation above 3% in August, with hard-hit businesses likely to face a second blow from rising interest rates.
The headline inflation rate in the euro zone, a net energy importer, rose to 3.3% from 2.9% in July, the highest level since September 2024, according to preliminary figures released by statistics agency Eurostat on Tuesday. Energy inflation accelerated from 10.3% to 14.3%.
However, the core inflation rate, which excludes variable factors such as energy, food, alcohol and tobacco, fell from 2.5% to 2.4%.
The Iran war and the closure of the Strait of Hormuz have led to soaring prices for crude oil and refined products, and Europe has been particularly affected by disruptions in the natural gas market.
Traders are firming on expectations that the European Central Bank will raise interest rates at its September 10 meeting, with market prices on Tuesday morning giving a 98.9% chance of a rise of 25 basis points to 2.5%, according to LSEG data.
The ECB raised its key policy interest rate to 2.25% in June, the first increase since 2023, in response to global inflationary pressures caused by the Iran conflict.
Joe Nellis, MHA’s head of economic research, said in emailed comments that the central bank would be wary of short-term inflationary pressures structuring and impacting wage and service inflation.
“The ECB faces the dilemma of a trade-off between higher interest rates and economic costs. Rising borrowing costs will continue to weigh on heavily indebted households, weaken the housing market and make investment more expensive for businesses.”
“For small and medium-sized enterprises in particular, further increases in financing costs could mean investment plans are postponed indefinitely or abandoned altogether.”
