Eurozone Inflation Rises to 3.3%, ECB Signals Further Rate Hikes

The European Central Bank (ECB) is signaling further interest rate hikes as inflation in the eurozone continues to rise. The current inflation rate of 3.3% has exceeded the ECB's 2% medium-term target for several consecutive months, with energy prices being the primary driver of this increase.

According to Gabriel Makhlouf, Member of the ECB Governing Council and Governor of the Central Bank of Ireland, the ECB must be prepared to raise interest rates further if inflation begins to move in an 'unfavorable direction'. He emphasized that even if the deposit facility rate reaches 2.5%, monetary policy will still not be sufficiently restrictive to significantly limit economic activity.

The ECB's current policy stance is shifting toward a more hawkish direction, with Makhlouf anticipating that the ECB's policy decision next week will likely result in an increase in the deposit facility rate from the current 2.25% to 2.50%. However, he did not commit to consecutive rate hikes by the ECB, instead emphasizing the need for a 'meeting-by-meeting' decision-making approach.

The ECB's core logic is that further rate hikes are highly certain, but subsequent moves depend on whether inflation continues to worsen. This means that future euro movements will be driven more by the combined influence of energy prices, core inflation, wage growth, and economic activity data, rather than simply following the interest rate decisions themselves.