ECB Readies Second Rate Hike as Eurozone Inflation Hits 3.3%
The European Central Bank (ECB) is widely expected to raise interest rates on Thursday for the second time in three months, according to market expectations.
The ECB delivered its first rate rise in three years on June 11, moving the deposit rate from 2% to 2.25%, in response to the energy price shock caused by the Iran war. It then paused in July, with Christine Lagarde signalling a hawkish stance for September.
August's inflation release erased any lingering hesitation, as eurozone inflation climbed to 3.3% from July's 2.9%, marking the highest level since September 2023. Energy inflation jumped to 14.3% from 10.3%. However, underlying price pressures remain muted, with core inflation dipping to 2.4% from 2.5% and services inflation easing to 3% from 3.3%.
The ECB's own analysis backs this view, attributing roughly 90% of the rise in energy inflation between January and May to adverse supply factors driven by geopolitical tensions. The authors noted that this episode is dominated by an energy supply shock, with demand and public policy stimulus playing only minor roles.