ECB Raises Interest Rates to Combat Inflation Sparked by US-Iran Tensions

The European Central Bank (ECB) raised interest rates for the second time this year in an effort to combat rising inflation. The move comes as oil and natural gas prices continue to drive up costs, pushing inflation above 3% in the eurozone. This is a significant increase from the previous target of 2%, causing concerns about economic growth.

The ECB's decision is in response to ongoing tensions between the US and Iran, which have led to increased energy costs. The bank warns that 'the outlook remains highly uncertain' with risks to inflation on the upside and economic growth on the downside. Despite this, the ECB predicts slight growth of 0.9% for 2026, up from 0.8% in June.

Sylvain Broyer, chief economist at S&P, notes that 'the inflation outlook has worsened over the summer' and that supply shocks are not only multiplying but also increasingly driven by demand. This means that prices for food, goods, and services may continue to rise.