Šimkus of the ECB highlights ongoing inflation risks despite improvements in the economy and labor market.

    by VT Markets
    /
    Sep 12, 2025
    ## Inflation Levels and Risks Inflation is stabilizing around the 2% target, but significant risks remain. The latest August 2025 flash HICP data for the Eurozone shows a 2.1% headline rate, while core inflation is higher at 2.8%. This situation keeps policymakers cautious, reminiscent of the inflation struggles from 2022-2023. The European Central Bank is hesitant to celebrate any victories yet. The economic outlook is stronger than we expected, which adds complexity to the inflation situation. Recent data revealed the Eurozone Composite PMI unexpectedly rose to 51.5, signaling increased business activity. Additionally, the labor market is strong, with unemployment at a low 6.3% in July 2025, reinforcing the idea of underlying economic strength. ## Opportunities for Derivative Traders For derivative traders, this suggests that implied volatility in euro interest rate options might be undervalued. The market currently anticipates a long pause, but any unexpectedly strong inflation or wage data in the coming months could lead to quick adjustments ahead of the December meeting. We recommend positioning for increased volatility instead of taking a strong directional stance. Strategies like buying short-dated straddles or strangles on EURIBOR futures that expire after the October and November inflation reports may be effective. The key point is that the ECB’s “pause mode” is fragile and relies on data. We need to be ready for the market to respond quickly if inflation risks become more apparent. Create your live VT Markets account and start trading now.

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