European Central Bank policymaker Martin Kocher warned that the ECB will need to raise interest rates further if oil prices remain around $100 a barrel through year‑end. Speaking after the ECB lifted its key rate by a quarter point to 2.5% on Thursday, Austria’s central bank governor said inflation risks have risen as Middle East tensions keep energy prices high. Oil has surged more than 45% since the US‑Iran ceasefire collapsed in early July, while European gas prices have nearly doubled to just under €80 per megawatt‑hour.
The ECB’s adverse scenario assumes an average oil price of $99 and gas at €77 per MWh in Q4, which would push inflation to 3.2% next year — missing the 2% target for a second year. Kocher stressed that monetary policy cannot control oil prices, so a temporary inflation overshoot is unavoidable, but it must be short‑lived and return to target within about a year. Investors now price in another quarter‑point hike to 2.75% by year‑end and a further increase in early 2027.
Kocher said it is too early to signal the ECB’s stance for its October meeting and that policy will stay data‑dependent unless surprising developments occur.
Source: Financial Times Companies · Summarized by HeadlinesBriefing