ECB Faces Pressure for Another Rate Hike Amid Persistent Inflation

European Central Bank (ECB) policymakers are likely to raise interest rates again in September as inflation remains above their 2% target. According to Nordea strategists, euro-area flash inflation rose to a new cyclical high of 3.3% year-over-year in August, driven mainly by higher energy prices.

The increase was fueled by energy inflation accelerating from 10.3% to 14.3%, while core inflation edged down to 2.4% due to weaker services growth. Despite the decline, core inflation has remained above the ECB's target since 2021 and is expected to remain so in the coming years.

Nordea strategists expect further gradual rate hikes, citing broadening price pressures and signs of second-round effects as the economy continues to grow and employment increases.