Eurozone food inflation still elevated, but otherwise benign – ABN AMRO

HICP inflation edged slightly higher in August to 2.1% y/y from 2.0% in July, in line with our and consensus expectations. Core inflation held steady at 2.3%, in line with our expectations but above consensus expectations for a move lower to 2.2. Dutch inflation maintained its slow gradual downward trend in August. The CPI came in at 2.8% y/y, slightly lower than the 2.9% of July, ABN AMRO's economist Bill Diviney and Aggie van Huisseling report.

ECB to be comfortable with the August inflation data

"As expected, base effects in energy prices pushed headline inflation higher in the eurozone. While monthly food price gains cooled a touch (0.2% m/m vs 0.4% in July), annual food inflation remained elevated at 3.2%. As noted in our write-up for July inflation, food inflation bears close watching given its importance for household inflation expectations."

"Goods inflation was broadly flat on the month, following the surprise rise in July, and in annual terms held steady at a benign 0.8%. Services inflation also held steady at 3.2%, consistent with the slow normalisation in wage growth."

"All told, the ECB will be comfortable with the August inflation data. Food inflation is somewhat of a concern, but trends elsewhere continue to look more benign, and consistent with inflation modestly undershooting the 2% target as we move into 2026. We continue to think the Governing Council will likely keep its key policy rates on hold over the coming months, with the deposit rate staying at 2%."