ECB set for new rate hike as energy shock drives inflation to 3.3%
Euro area inflation rose to 3.3% in August, driven mainly by an energy supply shock linked to the Middle East war and the closure of the Strait of Hormuz, putting the ECB on track for another rate increase on 10 September.
Inflation in the euro area climbed to 3.3% in August, up from 2.9% in July, according to figures cited in a paper published by European Central Bank economists Kristina Barauskaitė Griškevičienė and Claus Brand. The pair wrote that higher energy prices are the main driver of current inflation, while demand-side factors and government stimulus are playing only a minor role.
The economists estimated that adverse energy supply factors accounted for around 90% of the rise in energy inflation between January and May 2026, with monetary and fiscal policy exerting only slight downward pressure during that period.
War and the Strait of Hormuz
The current shock stems largely from the war in the Middle East, which broke out at the end of February, and the subsequent closure of the Strait of Hormuz. The economists stressed this differs sharply from the 2021-22 inflation surge, which was driven by a mix of supply and demand factors — including global supply chain disruptions, Russia's invasion of Ukraine, a post-pandemic demand rebound, and accommodative fiscal and monetary policies.
ECB's response
The ECB did not act immediately after the war began, delivering its first rate hike only on 11 June, when it raised its deposit rate from 2% to 2.25% — the first increase in three years. Even under the ECB's most optimistic scenario at the time, assuming an early end to the war, inflation was not projected to return to the 2% target before 2027.
With the conflict still ongoing and inflation now at 3.3%, markets expect the ECB to raise rates again at its 10 September meeting, from 2.25% to 2.50%. The bank noted that its current monetary response is more gradual than in 2021-22, when it raised rates forcefully and persistently.
