Eurozone Inflation Figures Due: Rate Hike Now All But Certain

The Eurozone inflation figures for August are due to be released later today, and markets are expecting a slight increase in headline annual inflation. The predicted figure is 3.3%, up from the previous rate of 2.9%. However, core annual inflation is expected to remain steady at 2.5%, which is still above the European Central Bank's (ECB) target of 2%.

The ECB has been closely monitoring inflation pressures in the region, and recent developments such as the ongoing US-Iran conflict are likely to exacerbate price increases. The conflict has led to higher energy prices and shipping disruptions that will continue to impact supply chains and raw material costs.

Given these factors, a rate hike is now considered almost certain by traders, with 98% odds of a September increase priced in, along with another 25 bps rate hike targeted for February. A rate hike this month would push monetary policy to mildly restrictive territory, but some analysts believe more action may be needed to combat inflation pressures.

The ECB has been cautious in its response to rising prices, and any decision will need to take into account the potential second-round effects of higher interest rates on the economy. Policymakers are aware that a rate hike is just the first step in addressing inflation concerns, and they may need to take further action in the future.