Eurozone food inflation still elevated, but otherwise benign

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%. (Bill Diviney)

The Netherlands: Inflation continues its slow gradual decline

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. Notably, the two key drivers of Dutch inflation – food and services prices – are continuing to gradually ease. Food prices are benefiting from the fading base effects of last year’s tobacco tax hike. Similarly, services prices are gradually declining. Still, while wage growth – an important driver in services inflation – has already peaked, its effects still linger due to long-term collective labour agreements. Additionally, rent rises, though having slightly moderated, remains elevated as these are tied to past wage increases.

Generally, while we continue to expect the gap between Dutch and eurozone inflation to decrease, the Dutch CPI is anticipated to remain above the 2% target in both 2025 and 2026 at 3.3% and 2.5% y/y respectively.