UBS Raises Eurozone Inflation Forecast to 3.5%

UBS has raised its Eurozone inflation forecast due to higher energy prices and a one-off increase in German healthcare costs. The bank's economists, led by Anna Titareva, now expect headline inflation to climb to 3.5% year-over-year in September, up from 3.2% in August.

The revision is driven entirely by higher energy inflation, while underlying measures such as exclusion metrics, trimmed means, and domestic inflation were broadly stable or slightly lower.

Within the details, seasonally adjusted monthly services inflation eased to 0.1%, while goods inflation ticked down to 0.3%. The annualized three-month rate for services fell to 2.8% year-over-year, its lowest level in more than a year, but goods inflation rose to 1.6%, the highest in three years.

UBS flagged rising inflation expectations as 'the main disappointment' in August's data, with increases recorded across most measures, though longer-term expectations remained anchored around 2%. The bank's wage tracker showed negotiated wage growth holding at 2.9% year-over-year in July and August, showing no signs of second-round effects so far.