European Central Bank’s September rate hike insufficient for inflation, says Simkus

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, pu...