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European Central Bank’s September rate hike insufficient for inflation, says Simkus
ECB governing council member warns that the anticipated 25 basis-point increase won't be enough to tame surging euro-zone prices driven by the Iran conflict
Euro-zone inflation just hit 3.3% in August, up from 2.9% in July, and one of the ECB’s own policymakers is already saying the central bank’s next move won’t cut it. Gediminas Simkus, a member of the ECB’s Governing Council, has signaled that the widely expected rate hike at the September 10 meeting will fall short of what’s needed to wrestle inflation back to the 2% target.
The deposit facility rate is set to climb 25 basis points to 2.50%, following a hike to 2.25% in June that marked the ECB’s first rate increase in nearly three years. Simkus previously described that June move as “too small to close the issue of inflation growth.”
Energy prices and the Iran factor
The primary culprit behind the inflation spike is energy prices, which have been climbing steadily amid the ongoing conflict in Iran. Core inflation, which strips out volatile food and energy components, actually eased slightly to 2.4% in August.
The ECB’s tightrope walk
The September hike is being treated as something close to a foregone conclusion by both economists and market participants. Most policymakers seem reluctant to telegraph additional tightening moves beyond September. The ECB’s own staff projections, published in June, forecast headline inflation at 3.0% for the full year of 2026, then falling to 2.3% in 2027 and reaching the 2.0% target in 2028.
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Markets aren’t entirely buying the calm-and-gradual narrative. Traders are pricing in the possibility of further rate hikes over the coming year, reflecting a bet that the Iran situation won’t resolve quickly.
What this means for markets
Market participants should watch for updated ECB staff projections at the September meeting. If the inflation forecasts get revised upward from their June levels, it would signal that even the ECB’s internal models are losing confidence in the smooth disinflation path. That, more than Simkus’s public commentary, would be the real catalyst for repricing rate expectations across European fixed income markets.