Eurozone consumer inflation steady in August; CPI rises 2.0% annually

Investing.com -- Consumer price inflation in the eurozone stayed steady on an annual basis in August, suggesting the European Central Bank can delay further interest rate cuts, if needed, until later in the year.

The consumer price index (CPI) rose by 2.0% annually last month, matching the July release, and slightly below the 2.1% growth expected.

Month-on-month, the reading gained 0.1% last month after posting a flat number in July.

Stripping out more volatile items like food and fuel, the "core" number remained at 2.3% in the twelve months to August, matching the level seen the prior month. 

The ECB held its key rate steady at 2% last week, in line with expectations, with policymakers expressing contentment that they had inflation back under control after the period of rapid price growth, caused by post-pandemic demand, supply chain disruptions and the war in Ukraine.

"We continue to be in a good place," ECB President Christine Lagarde told a press conference last week, adding that inflation was where the bank wanted it to be and the domestic economy remained solid.

The ECB currently projects an 18-month period of modest undershooting its target before price growth returns back to 2% in 2027.

Traders are now pricing an over 80% probability that the central bank holds rates steady until the end of 2025, according to LSEG data.

Following the ECB meeting last week, J.P. Morgan pushed its forecast for a 25-basis-point cut to December from October, while Barclays, Morgan Stanley and Wells Fargo reiterated expectations for a quarter-point cut in December.

"We acknowledge the clear risk that the ECB is done with cuts, but also want to recognise that the inflation outlook still implies an easing bias," J.P. Morgan strategists said in a note.

The ECB must be mindful of downside risks to inflation that stem from cheaper energy and a stronger euro, said Finnish central bank chief Olli Rehn last week.

"We need to avoid a situation where we deviate too much below or too much above our target," Rehn said.