BRUSSELS/FRANKFURT/PARIS (dpa-AFX) - Euro area inflation modestly accelerated to a four-month high, and the core figure was steady around the 2 percent target in August as a slight slowing in both food price growth and services inflation was offset by a smaller decline in energy prices, which suggests that the European Central Bank is set to hold interest rates steady in future policy sessions.
Headline inflation climbed to 2.1 percent from 2.0 percent in July, preliminary data from the statistical office Eurostat showed on Tuesday. Economists had expected the rate to remain unchanged for a second month in a row. Inflation was the highest since April when it was 2.2 percent.
Core inflation that excludes prices of energy, food, alcohol and tobacco was steady at 2.3 percent for a third straight month.
'With interest rates set at neutral levels, you could argue that this is a logical time for the ECB to keep rates on hold,' ING economist Bert Colijn said.
'But still, with slow growth, significant risks of downside surprises still prevalent, and the Federal Reserve expected to resume cutting rates again, the doves on the governing council could still push for one more cut before holding steady,' the economist said. 'Succeeding at that would be a tall order, as the case for holding steady is now quite solid.'
The ECB Consumer Expectations Survey for July had shown that euro area households' one-year ahead inflation outlook was steady at 2.6 percent. Expectations for the three-year ahead horizon rose to 2.5 percent, while that for the five years ahead was unchanged at 2.1 percent.
Commerzbank economist Vincent Stamer expects the ECB Staff to likely revise the Eurozone inflation forecast upward in its September projections.
In June, the bank staff had trimmed the euro area inflation forecast for this year and next by 0.3 percentage points to 2.0 percent and 1.6 percent, respectively, citing lower prospects for energy prices and a stronger euro.
Core inflation that excludes energy and food was forecast to average 2.4 percent this year and 1.9 percent in 2026 and 2027, which were broadly unchanged since March.
'With inflation stagnating in the euro area, the high hurdles of significant changes in inflation that ECB President Lagarde had set for a change in key interest rates are unlikely to be cleared,' Stamer said. 'We therefore do not expect any further interest rate cuts.'
The ECB paused its easing cycle in July when policymakers held the deposit rate steady at 2.0 percent amid slowing inflation and weaker growth in the backdrop of high uncertainty due to the trade tariffs.
Eurozone gross domestic product growth plummeted to 0.1 percent from 0.6 percent in the first quarter, official data showed.
Among the main components, the food, alcohol and tobacco group registered the biggest increase of 3.2 percent, which was slower than the 3.3 percent gain in July, Eurostat said. Services inflation eased to 3.1 percent from 3.2 percent.
Prices of non-energy goods rose 0.8 percent, same as in July. Energy prices fell 1.9 percent following a 2.4 percent slump in the previous month.
Spain logged 2.7 percent inflation in August, the highest among the big four. This was unchanged from July. Price growth in Germany climbed to 2.1 percent from 1.8 percent.
Inflation in France eased to 0.8 percent, while it was steady at 1.7 percent in Italy. Euro area consumer prices rose 0.2 percent from July, when they stagnated.
Eurostat is set to release the full consumer price index data for August on September 17.
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