ECB Signals Measured Approach to Rate Hikes Amid Surging Inflation

The European Central Bank (ECB) has signaled that it will take a measured approach to rate hikes, despite euro zone inflation exceeding its target of 3% and potentially reaching as high as 4% by year-end.

According to Christine Lagarde, the ECB's president, the main driver behind higher inflation is surging energy costs linked to the U.S.-Iran conflict. She emphasized that there are no clear signs yet of wage-driven inflation spillovers in the euro zone.

Lagarde acknowledged that risks are tilted towards higher inflation readings and uncertainty around the outlook remains elevated. However, she argued that a measured response is warranted to keep inflation in check, rather than aggressive rate hikes as some market expectations suggest.

Economists expect the ECB to skip its October 29 meeting and possibly raise rates in December after updated projections, following two hikes this summer.