ECB Raises Rates to Combat Inflation Fuelled by Oil Prices

The European Central Bank (ECB) has raised interest rates by a quarter point to combat inflation fueled by high oil prices due to the Iran war. The decision was made in response to a stronger-than-expected economy, which suggests businesses can withstand higher borrowing costs.

The ECB's benchmark rate is now 2.50%, up from its previous level at a meeting held in Berlin, away from its Frankfurt headquarters. In an accompanying statement, the bank noted that 'the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period.' The economic outlook remains 'highly uncertain,' according to the ECB.

The decision was influenced by eurozone inflation of 3.3% in August, which exceeds the bank's target of 2%. Oil prices have risen above $100 per barrel due to reduced tanker traffic through the Strait of Hormuz under threat of Iranian attack. The duration and impact of these high oil prices are uncertain.