European Central Bank: Inflation risks support another hike - Nordea

Nordea analysts suggest the European Central Bank (ECB) should raise interest rates again, following Euro-area flash inflation rising to 3.3% year-on-year in August. The main driver of this increase was higher energy inflation, which climbed from 10.3% to 14.3%. Core inflation, however, slightly decreased to 2.4% due to weaker services inflation. The ECB has consistently targeted inflation rates below 2% since 2021, and this latest data indicates that inflation remains above this threshold.

Analysts believe that the ECB will continue to raise rates at quarterly intervals, with the next hike likely during the September meeting. They also anticipate broader price pressures as the economy expands, the labor market stays tight, and employment continues to rise. Furthermore, geopolitical tensions in the Middle East and elevated energy prices, including low natural gas inventories, heighten the risk of even higher energy costs during winter months.