European Central Bank raises interest rates a quarter point to quell energy-fueled inflation

Frankfurt, Germany (AP) — The European Central Bank increased interest rates by a quarter percentage point on Thursday to curb inflation fueled by high oil prices from the Iran conflict. The rate hike was backed by a stronger-than-expected economy that indicates businesses can handle the higher borrowing costs. The decision came at a meeting in Berlin, not the bank’s headquarters in Frankfurt.

ECB President Christine Lagarde stated during her post-meeting press conference that "the conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period." She added that the bank's future rate decisions would be made on a case-by-case basis, depending on incoming data.

The bank had not raised rates since its June 11 meeting and had paused at its July 23 session. Inflation worries are also affecting the U.S. Federal Reserve, whose policymakers meet on September 15-16. Fed Chair Kevin Warsh has suggested the bank may need "more work" to tame U.S. inflation, which stands at 3.7%. High energy costs are a key driver of the eurozone inflation rate, which hit 3.3% in August, surpassing the ECB's 2% target.

Oil prices have surged above $100 per barrel due to threats targeting shipping routes through the Strait of Hormuz. The ECB's rate hike is intended to be proactive, showing the ECB's commitment to managing inflation risks and preventing further price increases throughout the economy.