Energy Inflation at 18.9% Bolsters Kazimir’s Signal of a European Rate Hike
Key Facts
Peter Kazimir, a member of the European Central Bank’s Governing Council and governor of the National Bank of Slovakia, said the bank would have to raise rates again, according to a Reuters headline published on November 2. The headline did not specify the size of a potential increase, leaving the scale of the next move open. The signal follows the bank’s October 29 decision to leave all three key interest rates unchanged. The deposit rate stood at 2.50%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%. The next meeting in December will put those levels under fresh review in light of price and activity data.
The bank’s October statement showed energy inflation accelerating to 18.9% in September, from 14.3% in August. Inflation excluding energy rose to 2.3% in September from 2.1% the previous month. The bank said energy prices continued to rise, increasing inflation risks while weighing in the opposite direction on the growth outlook. In its policy statement, it said a larger and more prolonged energy shock could raise inflation and lower growth through indirect effects and second-round effects. It added that energy and financing prices would factor into the December decision assessment, as the shock’s effects continued to emerge.
Bank President Christine Lagarde said the Governing Council discussed in October whether a rate hike was appropriate, but unanimously decided to wait for more information. She said incoming data could confirm a rate-hike trajectory, signalling that last month’s decision had not closed the door to tightening. This is consistent with the bank’s stated approach of setting policy meeting by meeting, based on the data. The energy impact remains a key factor in balancing inflation and growth, according to the bank’s assessment. Upcoming price readings will help test whether the pressures recorded in September persist.
The next data milestone is November 4, when the flash estimate of the euro zone’s Harmonised Index of Consumer Prices for October is due at 15:00 Central European Time. The bank did not provide a numerical forecast for the release in its announced schedule. The next monetary policy meeting will be held on December 16 and 17 in Frankfurt, followed by a press conference on the second day. The bank said the December meeting would be part of a new round of projections, after further data on inflation, growth, employment and wages become available. The expected data include two more inflation readings, two unemployment readings and two industrial production releases before the meeting.
In its September projections, the bank put inflation at 3.0% in 2026 and 2.5% in 2027, against gross domestic product growth of 0.9% and 1.4% in the same years. These estimates provide context for the policy path, while the Associated Press reported that euro zone growth in the third quarter was 1.3% year on year and that the quarterly reading exceeded market analysts’ 0.2% forecast. The bank’s statements tie its policy assessment to the path of prices and activity, while giving weight to the energy shock in the December decision. The bank said that “energy prices have risen, posing upside risks to the inflation outlook and downside risks to the growth outlook.” The October flash estimate is due to provide the first near-term update on the price path ahead of the December meeting.