Take Two: ECB keeps interest rates on hold; US inflation rises

What do you need to know?

The European Central Bank (ECB) kept its benchmark deposit facility interest rate unchanged at 2.0% for the second consecutive meeting, saying it was “determined to ensure that inflation stabilises” at its 2% target. The most recent reading showed Eurozone annual inflation had edged up to 2.1% in August from 2% in July. However, the ECB lifted its 2025 Eurozone economic growth forecast to 1.2% from 0.9% but cautioned that higher tariffs and increased global competition are expected to weigh on growth for the rest of the year. It now projects 1.0% growth for 2026, down from June’s prediction of 1.1%.

Around the world

During August, US annual inflation increased at its fastest pace since the start of the year. Headline inflation rose to 2.9% from 2.7% the month before, partly driven by housing costs, while the core measure, excluding food and energy, was steady at 3.1%. Despite the uptick, the Federal Reserve (Fed) is expected to cut interest rates this week. Elsewhere, Japan’s economy expanded at an annual pace of 2.2% in the three months to June, beating the flash estimate of 1%. On a quarterly basis, GDP grew 0.5%, up from the initial estimate of 0.3%, marking the country’s fifth consecutive quarter of growth.

Figure in focus: $3,600

The price of gold hit a fresh high last week, breaking through the $3,600 per troy ounce mark, on the back of inflation concerns and hopes that the Fed will cut interest rates. Traditionally seen as a hedge against inflation and a ‘safe haven’ asset during periods of uncertainty, bullion has rallied robustly in 2025, and its new high represents a significant rise of some 37% since the start of the year. Meanwhile the Dow Jones equity index crossed the 46,000 mark for the first time while the S&P 500, Nasdaq and Japan’s Nikkei 225 indices all hit record highs too last week.

Words of wisdom:

Transshipment: Transshipment is the process of transferring goods from one vessel to another during transit to their final destination. It is often used when direct shipping routes do not exist or are unavailable but could also be a tactic to route goods via lower tariff countries. China’s exports to the US fell 33% in August, likely in part due to the US administration’s additional 40% tariff on goods it considers transshipped, and as the impact of frontloading trade faded. Overall, China exports rose 4.4% in August from a year earlier, their lowest pace of growth since February, while imports rose 1.3%.

What’s coming up?

Monetary policy is in focus this week, with several central banks convening to set interest rates. The Fed and Bank of Canada each meet on Wednesday – in July, the Fed held rates steady at 4.25%-4.50% for a fifth consecutive time. The Bank of England holds its own monetary policy meeting on Thursday – it opted to cut rates by 25 basis points to 4% at its last gathering; the Bank of Japan follows on Friday. In terms of economic data, the Eurozone and Japan issue inflation updates on Wednesday and Friday respectively.