The trend in inflation in September and the movement of international oil prices in October will be the two key factors influencing the ECB’s decisions on interest rates at the end of nextmonth.
The ECB faces a dilemma: whether to proceed with another interest rate hike at its next monetary policy meeting on October 29 or to adopt a wait-and-see approach until Decemberin order to have a clearer picture of inflation levels. Given that the rise in inflation is primarily due to the energy crisis, it is clear that developments in international oil prices are on the Central Bank’s staff’s radar every day.
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The $100 threshold
In recent weeks, due to the escalation of Houthi attacks on Saudi Arabia, which have sparked fresh concerns about oil flows, the price of Brent crude has once again climbed above $100 per barrel, though it has shown sharp volatility toward lower levels when statements by U.S. and Iranian officials have sparked optimism about the possibility of a deal.
Thus, according to relevant European sources, it would be premature under these conditions of intense uncertainty for the ECB to rush to raise interest rates, triggering a new surge in the cost of borrowing in the eurozone. In recent days, the price of Brent crude has hovered around $105 per barrel, with sharp fluctuations and dips below $100.
The main scenario currently being considered is that if oil prices ease and remain below the $100-per-barrel range, and if September’s data do not show a significant accelerationin inflation, the ECB will have more leeway to leave interest rates unchanged in October. In such a case, the next rate hike could be postponed until the December 17 meeting, when the ECB will have more data on the intensity and duration of the energy shock.
A stabilization below $100 would limit the risk of a new, strong wave of energy price hikes and, through that, in the rest of the economy. Conversely, a new and prolonged rise above that level would increase pressure on the ECB to react swiftly.
September Inflation
In any case, the trajectory of inflation in September will influence the ECB’s decisions on interest rates, as it reflects both the level and the trend in price developments over the coming months. On October 2, Eurostat will release its first estimate of inflation for the current month. In August, annual inflation in the eurozone stood at 3.2%, up from 2.9% in July, with energy costs accounting for the largest share of the increase.
If the September data show that the rise remains contained and, above all, that energy price increases are not being passed on more aggressively to services and other goods, this will strengthen the case within the ECB for a pause in October.
It should be noted that the ECB now forecasts average inflation of 3% in 2026, 2.5% in 2027, and 2.1% in 2028—meaning a return to near the 2% target will come much later.
The coming weeks, therefore, will be decisive. According to relevant European sources, if oil prices return to levels below $100 and September’s inflation figures do not hold any unpleasant surprises, the ECB will have a compelling reason to buy time on October 29. If, however, the opposite occurs and the energy shock begins to take on more permanent characteristics, the discussion about a new interest rate hike as early as October—from the current 2.5% to 2.75%—will resurface with greater intensity.
Source: KYPE
