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Eurozone inflation climbed to 3.3% YoY in August from 2.9% in July, according to Eurostat’s preliminary estimate this morning. The reading was the highest since September 2023 and moved inflation further above the ECB’s 2% target. The acceleration largely reflected surging energy prices resulting from the continuing conflict in the Middle East. This renewed pressure makes a September rate hike increasingly likely. …Beyond September, however, our view diverges from market pricing: we expect the ECB to remain on hold for an extended period, as energy prices are more likely to retreat than to generate a lasting second-round inflation shock. Even after two rate increases, Eurozone monetary conditions should remain relatively supportive. Together with Germany’s substantial fiscal expansion, this should help sustain the regional recovery. Following the stronger-than-expected Q2 GDP result, we raised our Eurozone growth forecasts to 0.9% for 2026 and 1.2% for 2027.