ECB Set to Hike Rates Amid Eurozone Inflation Surge

The European Central Bank is set to raise interest rates again this week as renewed fighting in the Middle East pushes up energy costs and risks further stoking inflation. The conflict has sent oil prices soaring, with some of the heaviest clashes in weeks erupting in recent days.

Inflation in the 21-nation eurozone hit a three-year high of 3.3 per cent in August, substantially above the ECB's two-per cent target. With fears growing that prices will spiral even higher, the central bank is expected to hike its benchmark rate for the second time this year.

Andrew Kenningham, chief Europe economist at Capital Economics, believes the ECB governing council looks certain to raise its deposit rate from 2.25 per cent to 2.5 per cent. However, some economists disagree with the decision, arguing that a rate hike will not effectively tackle the current oil supply shock.

ECB President Christine Lagarde and council member Joachim Nagel have signalled that policymakers will resume hiking rates, despite concerns about the impact on the economy.