Inflation in the eurozone increased to 2.1% in August in a blow to Brits travelling to parts of Europe. August headline consumer price inflation (CPI) in August crept above the European Central Bank’s 2% target at 2.1% year on year. Core inflation, which strips out food and energy, rose to 2.3%, pointing to underlying pressures.
Demand in the 20 countries which use the euro is strengthening, driven by real wage growth, rising household consumption and easier financial conditions. Rising inflation means food, fuel and accommodation are getting more expensive, eating into holiday budgets for Brits heading to the eurozone.
The outlook for the pound to euro exchange rate has also taken a knock in recent days amid turbulence in bond markets, speculation about possible tax hikes and confidence in the Government’s fiscal strategy weakening. For travellers, that means a pound buys fewer euros. Tourists heading to the eurozone could expect a euro-sterling rate of 1.12 today (September 3).
August’s flash inflation reading compares with the 2% recorded in the Eurozone in June and July. The rise in eurozone inflation was driven by increased food, alcohol and tobacco prices, which were up 3.2% on a year ago.
Services inflation decreased to 3.1%, which is the lowest level since March 2022. The ECB is expected to keep interest rates on hold at its next meeting on September 11.
ECB policymaker Isabel Schnabel told Reuters the eurozone economy exceeded expectations because of “robust” growth in domestic demand.
She added there would also be a “significant fiscal impulse” from in investment on infrastructure and the military by Germany.
But she warned that tariffs imposed on eurozone goods entering the US would increase inflationary pressures.
Food price increases, disruption to supply chains and the US decision to tax small parcels mean “the balance of risk” was “tilted to the upside”, according to Ms Schnabel.
The 20 eurozone members are: Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
