ECB Raises Interest Rates Again Amid Rising Inflation
nashnova research
The ECB hiked rates at its September meeting as eurozone August CPI hit 3.3%, the highest in a year — yet core inflation unexpectedly fell, splitting the market on whether 2.5% marks the terminal rate.
Why did inflation spike so sharply?
Eurozone August CPI rose to 3.3% year-on-year, up from 2.9% in July — the highest since September 2023.
The driver is energy: the Middle East conflict kept pushing oil and gas prices higher, with energy inflation jumping from 10.3% to 14.3% and feeding through to consumer prices.
This means → the current inflation wave is not demand-driven but an external supply shock — war-driven energy costs pouring in from upstream.
Core inflation actually fell — what does that tell us?
Stripping out food and energy, core CPI unexpectedly eased from 2.5% to 2.4%; services inflation dropped from 3.3% to 3.0%.
In plain terms = remove the energy noise and underlying price pressure in the eurozone is cooling, not worsening.
This reflects a soft labour market and subdued wage growth — domestic demand is not riding the energy wave higher.
Is 2.5% the terminal rate?
Chief Economist Philip Lane has framed 2.5% as the upper edge of the "neutral range"; some officials argue rates may need to breach 2.5% if the energy shock persists.
Executive Board member Piero Cipollone urged caution — he sees the second-round inflation effects of the war as not yet fully visible, and warns against ignoring downside economic risks.
This means → the ECB itself is split: hawks focus on energy risk and want to keep hiking; doves focus on a weak economy and want to pause.
What comes next?
Bloomberg senior eurozone economist David Powell noted that surging headline inflation diverging sharply from falling core inflation supports the view that the ECB will not tighten aggressively.
He added: if the energy shock lasts longer, a December rate hike could return to the agenda.
In plain terms = the next move hinges not on the ECB's own models but on the Middle East — the longer the conflict drags on, the longer energy prices stay elevated, and the longer the pressure to hike persists.
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