Eurozone inflation slightly rebounded in August, unlikely for ECB to cut rates in September meeting?

The inflation rate in the Eurozone slightly rebounded in August, surpassing the European Central Bank's target again, which solidified expectations that the bank will maintain interest rates at next week's meeting.

Data released on Tuesday showed that the Eurozone's CPI rose 2.1% year-on-year in August, up from 2.0% in July, in line with economists' expectations. The core inflation rate, excluding volatile items such as energy and food, remained stable at 2.3%. The much-watched increase in service prices slowed to 3.1%.

This report will confirm the European Central Bank's view that they can pause interest rate cuts again at the meeting on September 11. ECB President Christine Lagarde previously reiterated that the central bank is currently in a "good place," and investors are no longer convinced that there will be more rate cuts this year.

The ECB maintained the deposit rate at 2% in July. The latest inflation data, along with the resilience shown by the economy after the tariff agreement between the US and Europe, may lead decision-makers to feel satisfied with the current inflation pace and economic conditions.

Decision-makers Generally Support Maintaining Rates

Several ECB decision-makers have recently expressed support for keeping interest rates stable in the current environment. German Bundesbank President Joachim Nagel described the current economy as being in a "certain state of equilibrium," with both inflation and interest rates at 2%. Nomura Securities economist Josie Anderson also stated in an interview:

"We believe the overall situation of inflation will stabilize around 2% for the remainder of this year. Our view on the ECB is that there will be no more rate cuts."

The hawkish ECB Executive Board member Isabel Schnabel was more explicit in her stance, stating that "there is no reason to see further rate cuts in the current situation," and warned that tariffs will "have a net inflationary effect."

The Door to Rate Cuts Is Not Completely Closed

Although pausing rate cuts is the mainstream view, some officials still leave room for future easing policies, believing that uncertainties exist in the outlook. Lithuanian central bank governor Gediminas Simkus hinted in an interview with Econostream that due to downward pressure on prices, the likelihood of another rate cut is "greater than not cutting." He believes that December's meeting is a possible time point.

Finnish central bank governor Olli Rehn also warned over the weekend that due to the strengthening euro, falling energy prices, and slowing core inflation, the inflation outlook faces "more downside risks." Previously released minutes from the ECB's July meeting also showed differing views. Some members warned that due to economic resilience and high domestic price pressures, inflation poses an upside risk, but most believed that the risks to the price outlook are "roughly balanced."

The latest overall data from the Eurozone masks the varying performances among member countries. Previously released data showed that inflation figures in France, Italy, and Spain were below expectations, while Germany's inflation rate was slightly above expectations. This highlights that the economic outlook for the entire Eurozone remains uncertain.

Analyst David Powell noted in a report that the latest inflation report "is good news for the ECB," as service sector inflation has slowed again He expects that as wage growth slows, service sector inflation will further decline this year, which "should create conditions for another rate cut in December, when the damage of U.S. tariffs to the economy will become more apparent."