ECB Prepares to Hike Rates Amid Persistent Inflation Pressures

The European Central Bank (ECB) is poised to raise interest rates next week as policymakers tackle inflation that remains above their 2% target. Bundesbank President Joachim Nagel has signaled support for another increase, but indicated that the path beyond September is uncertain due to volatile energy prices and financial markets.

Market expectations are strong, with a probability of over 95% assigned to an ECB rate hike at its September meeting. The latest inflation data shows euro-area annual inflation accelerated to 3.3% in August from 2.9% in July, further above the ECB's target.

Nagel emphasized that current inflation remains too high and that higher interest rates would be needed for price growth to return to target over the medium term. He also warned of persistent inflation raising the risk of second-round effects spreading through wages and other parts of the economy.