ECB May Hike Rates Again Amid Iran Conflict-Driven Inflation Risks

The European Central Bank (ECB) may need to raise interest rates further to combat inflation, according to ECB policymaker Martins Kazaks. Kazaks warned that higher fuel costs linked to the Iran conflict pose a significant risk of feeding into wages and consumer prices.

Kazaks, who is also governor of Latvia's central bank, stated that there was scope for additional incremental rate increases as energy prices and underlying inflation remain elevated. The ECB raised its key interest rate to 2.5% from 2.25% on Thursday, marking its second hike this year.

The ECB expects price pressures to increase further over the coming months, with eurozone inflation reaching 3.3% in August. Kazaks highlighted that the economy is operating close to capacity, which could increase the likelihood of higher energy costs being passed on to consumers through prices and wages.