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(Bloomberg) — European Central Bank officials are prepared to raise borrowing costs in September unless the euro-zone inflation outlook improves markedly, people familiar with the situation said.
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Based on today’s information and data, in particular on the Middle East conflict and its economic fallout, it’s likely that another quarter-point increase will be needed to contain consumer-price pressures, said the people, asking not to be identified because discussions on the matter are private.
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They stressed that nothing has been decided and the situation can change quickly, especially if there’s progress toward a peace deal or a more severe economic downturn materializes, a stance in line with the institution’s “meeting-by-meeting” approach.
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An ECB spokesperson declined to comment on the Governing Council’s policy plans.
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On Thursday, President Christine Lagarde laid the groundwork for a possible increase in September, saying that some of her colleagues questioned if they should act immediately before they then kept their deposit rate unchanged at 2.25%.
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“There were some governors who asked themselves whether we should not consider a hike,” she told reporters in Frankfurt on Thursday. “We were positioned adequately to wait and be very attentive in the next few weeks to the development of the situation and to the data that we will be receiving in the next few weeks.”
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Last month, the ECB became the first central bank in the Group of Seven to raise rates since the conflict began. It now remains at the vanguard of that club in confronting price pressures driven by the hostilities.
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“Risks to the inflation outlook are to the upside,” Lagarde told reporters. “The energy shock could intensify further, and its effects on other prices and wages could be stronger than currently expected. The longer energy prices stay high, the more likely they are to drive up broader inflation.”
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The Middle East conflict currently shows signs of widening and inflicting further disruption. Oil topped $100 a barrel on Thursday for the first time in two months after Iran-backed Houthi militants said they attacked two Saudi Arabian tankers in the Red Sea.
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