ECB Set to Hike Rates Amid Energy-Driven Inflation Fears

The European Central Bank is set to raise interest rates on Thursday in response to renewed inflation risks fueled by surging energy prices, according to Reuters.

Brent crude has climbed over the past month, while European natural gas prices have risen to their highest levels since early 2023. This increase in energy costs has pushed eurozone inflation back above 3% in August, raising concerns that the latest price shock could slow the ECB's progress towards its 2% inflation target.

The market is already pricing in a quarter-point rate increase, which would take the deposit rate to 2.5%. This move comes after inflation accelerated in August largely due to higher energy costs. The expected hike represents a cautious step by policymakers to prevent the energy shock from feeding into broader inflation expectations.

The outlook beyond September is far less certain. ECB policymakers are unlikely to commit themselves to a series of additional rate increases, particularly as higher borrowing costs could weigh on economic activity. Economists polled by Reuters largely expect the central bank to stop tightening after this month's expected hike.