Euro zone inflation accelerated to 3.3% in August from 2.9% in July, driven largely by higher energy costs and adding pressure on the European Central Bank ahead of its September meeting.

Consumer prices across the 21 countries using the euro rose as crude oil and natural gas prices increased, while refiners lifted margins, according to Eurostat. The latest figures also reflect renewed pressure from the Iran war, which has added uncertainty to global energy markets.

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Energy Costs Drive The August Increase

Energy was the main factor behind the acceleration in headline inflation. Rising oil and natural gas prices have increased costs across the energy market, while higher refining margins added to the pressure.

The latest increase comes as geopolitical tensions continue to affect expectations for global energy prices. That could complicate the ECB’s assessment of how long the inflationary effects will last.

Core Inflation Offers Some Relief

Underlying price pressures remained more contained in August. Core inflation, which excludes volatile food and fuel prices, eased to 2.4% from 2.5% in July.

Services inflation also slowed, falling to 3.0% from 3.3%. The moderation suggests that higher energy costs have not yet produced a broad acceleration in underlying inflation, which could otherwise require a stronger monetary policy response.

September Rate Hike Is Widely Expected

The August inflation figures are broadly consistent with the ECB’s own expectations and reinforce market expectations for a deposit rate increase to 2.50% on Sept. 10. Financial markets have already priced in the move, making the September decision relatively well anticipated.

Attention is therefore shifting toward the ECB’s policy path after September. The outlook is less certain, with economists divided over how persistent euro zone inflation will prove to be and how much further rates may need to rise.

Economists See A Possible Pause After September

Many economists expect the ECB could stop tightening after September, leaving interest rates near what is often described as the neutral range. Such a level would neither materially stimulate nor restrain economic activity.

Several factors support that view. The labor market remains relatively soft, wage growth has not shown a pronounced acceleration, and economic growth is running at around 1%, leaving the region exposed to further weakness if geopolitical tensions persist.

Markets Price In More Tightening

Financial markets are taking a more hawkish view of the policy outlook. Many traders are betting on two additional rate increases over the next year, arguing that higher energy prices could gradually feed into broader pricing decisions.

Natural gas prices are also rising, while the euro zone economy has so far shown resilience despite war, tariffs and tighter monetary policy. Some analysts expect the global rate environment could remain restrictive as central banks, including the Federal Reserve, potentially keep borrowing costs elevated for longer.

December Could Become The Next Key Decision Point

Even if the ECB ultimately determines that additional tightening is necessary, policymakers appear to have little urgency about follow-up moves. The central bank could skip the October meeting and wait for its next round of economic projections in December before deciding whether further rate increases are warranted.