The European Central Bank may continue to raise interest rates due to the multiple risks of inflation accelerating further, said Primož Dolenc, a member of the institution's Governing Council and Governor of the Central Bank of Slovenia. However, he stressed that the timing and size of a possible new increase are too uncertain to be predicted.
“The persistently high inflation that we see in the September forecast and the lack of a solution to the conflicts in the Middle East, Ukraine and other regions support a shift in interest rates to more restrictive territory“, Dolenc said in an interview with Reuters.
Energy remains the main risk
Annual inflation in the euro area reached 3.8% in September, or almost twice the ECB's target of 2%. The increase was largely related to energy prices. At the same time, core inflation, which excludes energy and food, has remained relatively stable, which Dolenz said limits the risk of the price increase spreading broadly to services and other components of consumer prices.
So far, there is no sign of a second-round effect on wages. This is an important factor for the ECB, as a sustained acceleration in wages could keep inflation high for a longer period.
Among the risks, Dolenz also cited low gas supplies in Europe, a possible further rise in food prices due to heat waves and the El Niño phenomenon, as well as a stronger-than-expected economic performance. The ECB’s September forecasts foresee inflation peaking at 3.6% in the fourth quarter of 2026, mainly due to the energy shock related to the conflict in the Middle East.