ECB Raises Rates as Energy Inflation Surges to 14.3%

The European Central Bank (ECB) raised its benchmark interest rate by 25 basis points to 2.5%, its highest level since March 2025, in response to surging energy inflation.

The decision was widely expected, but the euro has posted slight losses following the announcement. The ECB last raised rates in June, and this move brings the total number of rate hikes since 2023 to two, with a third possible before the end of the year if the Iran war continues to push oil prices above $100 a barrel.

The conflict in the Middle East is driving inflation pressures, according to the ECB, which projects that headline inflation will average 3% in 2026. August's eurozone inflation hit 3.3%, with energy costs running at 14.3%. Core inflation, excluding energy costs, actually fell in August, dropping to 2.4% from 2.5% a month earlier.