ECB Set to Hike Rates Amid Eurozone Inflation Surge

The European Central Bank is likely to raise its deposit rate to 2.50 percent amid rising inflation in the eurozone, which reached a high of 3.3 percent. The increase would be the second in three months and reflects the urgency of addressing the inflation issue.

However, almost none of this inflation is demand-driven, but rather due to energy price increases across the eurozone, which rose by 14.3 percent year-over-year. Core inflation is actually easing, while the cost of oil and gas continues to rise due to ongoing conflicts in the Middle East.

The International Energy Agency has described the situation as one of the largest supply disruptions in recent history. This has led to a surge in crude prices on supply disruption fears, further amplified by the euro's underperformance against the dollar. The resulting energy bill for the eurozone has essentially been multiplied.