ECB Faces Pressure to Raise Rates Amid Rising Inflation and Energy Prices

The European Central Bank (ECB) is expected to raise interest rates again in response to inflation rising to 3.3% in August, up from 2.9% in July.

The main driver of this increase is higher energy prices, according to ECB economists Kristina Barauskaitė Griškevičienė and Claus Brand, who wrote that 'adverse energy supply factors accounted for around 90% of the increase in energy inflation between January and May'.

This current shock differs significantly from the 2021-22 episode, which was driven by a combination of large and unprecedented supply and demand-side factors. The ECB raised interest rates forcefully and persistently at that time, but this time the monetary response is more 'gradual', the economists wrote.