ECB likely to raise rates in December, says Nagel

Governing Council member Joachim Nagel of the European Central Bank (ECB) indicated in a Berlin speech that the institution likely plans to raise interest rates in December, attributed to a worsening inflation scenario. The Bundesbank President asserted that the September baseline projection for consumer prices had already anticipated an additional rate hike, and the situation has further deteriorated since then.

Nagel highlighted the growing risk of inflation spillover to other prices due to persistent spikes in energy costs. He emphasized that the ECB will rely on its fresh economic forecasts through 2029 when officials convene next month, stating, "We will base our decision on these projections." However, Nagel also clarified that, as of now, there appears to be no alternative to an interest-rate hike, unless the inflation outlook significantly improves.

The ECB had maintained interest rates unchanged the previous week after raising them twice since the onset of the Iran war. Multiple officials have suggested further action may be necessary, with Nagel echoing this sentiment on Friday to Bloomberg. Economists anticipate a final rate shift in December, although investors expect tightening measures to persist beyond that into 2027.

Bulgarian Governing Council member Dimitar Radev cautioned on Tuesday that last week's rate pause does not signify the end of rate hikes. His Slovak counterpart, Peter Kazimir, reiterated that Thursday's decision "was not a finish line" on Thursday. Eurostat is scheduled to release its report on Wednesday, projecting that euro-zone inflation reached 4% in the previous month, double the ECB's target.

Nagel attributed part of last week's rate pause to the absence of second-round effects thus far. He noted that rising energy prices "may increasingly feed through to wage demands as well," potentially driving prices higher.