Euro-Zone Inflation Hits Highest Level in Almost Three Years

European inflation has surged to its highest level in almost three years, prompting calls for another interest-rate hike by the European Central Bank (ECB) next week. The euro-area consumer price index rose 3.3 percent from a year ago in August, up from 2.9 percent the previous month, according to Eurostat data released on Tuesday.

This marks the highest inflation rate since September 2023 and is in line with the median estimate in a Bloomberg survey. The increase was driven by elevated oil and gas prices feeding inflation pressure across the 21-nation euro area. Italy saw a sharp jump to 3.2 percent from 2.9 percent, while Spain's reading rose to 4.5 percent.

The ECB's Executive Board member Isabel Schnabel last week stated that borrowing costs must rise further to bring price gains back to target. Other policymakers have expressed similar views, with Austrian central-bank chief Martin Kocher saying 'upside risks to inflation have increased again recently.' If this picture is confirmed in the ECB's new forecast, I believe another interest-rate hike will be necessary in the near future.