August euro area inflation tops 3% as energy prices surge

• Eurozone's preliminary August CPI rose 3.3% year-on-year, matching the 3.3% forecast.
• The prior reading was 2.9%.
• Core CPI, excluding energy and food, came in at 2.4% year-on-year, below the 2.5% expected.
• The previous core figure was 2.5%.

The headline annual inflation rate rose back above 3% for the first time since May, as expected. Energy price inflation was the main driver, surging to 14.3% in August, a sharp increase from 10.3% in July.

On a monthly basis, energy prices rose 2.9%, contributing to a 0.4% increase in overall monthly inflation. Services inflation edged up 0.1% month-on-month, while food prices remained unchanged.

The sole surprise came from core annual inflation, which eased slightly more than expected to 2.4%. That equals the lowest level since June, but remains above the rate seen during the initial US-Iran conflict. The decline was mainly due to services inflation falling to 3.0% from 3.3% in the previous month. Food price inflation held steady at 1.2%, unchanged from July.

Overall, the data reinforces that the European Central Bank needs to carefully position itself for the ongoing fight against inflation, with potential risks of second-round effects looming. A September rate hike appears justified, but policymakers do not need to rush into subsequent moves.