ECB Hikes Interest Rates Amid Persistent Eurozone Inflation

The European Central Bank (ECB) raised interest rates on Thursday to combat rising inflation in the eurozone. The move aims to curb the effects of higher energy costs, driven by the ongoing US-Israel conflict with Iran.

Rising oil and natural gas prices have pushed inflation above 3% in the 21-country eurozone, surpassing the previous target of 2%. This is the second interest rate hike implemented by the ECB this year.

The outlook remains highly uncertain, with risks to both the upside of inflation and the downside of economic growth. The ECB has revised its economic growth projection for 2026, predicting a slight increase of 0.9%, up from 0.8% in June. Inflation is now expected to average 3.0% this year and 2.5% in 2027.

Sylvain Broyer, chief economist for Europe, the Middle East, and Africa at S&P, notes that 'the inflation outlook has worsened over the summer.' He attributes this to supply shocks multiplying and demand increasingly contributing to inflation.