The European Central Bank is set to join the U.S. Federal Reserve in making a jumbo interest rate hike Thursday as it tries to stamp out record inflation.
The meeting of the bank’s governing council is not about whether to raise rates for the 19 countries that use the euro currency, but by how much: between half a percentage point or three-quarters of a point, analysts say. The bank made its first increase in 11 years at its last meeting in July, raising rates by a half-point when it usually changes by only a quarter-point.
The ECB, which once predicted no rate increases at all this year, has torn up its road map in the face of record inflation of 9.1% last month, which has been driven by skyrocketing prices for natural gas and lasted much longer than expected. Inflation is far above the bank’s goal of 2% considered healthiest for the economy.
The central bank’s rationale for an increase of three-quarters of a point would be that “failing to act today would lead to larger moves and higher costs in the future,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.
The price of natural gas — used to generate electricity, heat homes and run factories — has jumped more than tenfold as Russia has throttled back deliveries as tensions mount over the war in Ukraine. European politicians call it blackmail over their support for Kyiv.
The resulting inflation is making everything from groceries to utility bills more expensive, creating a cost-of-living crisis that will only worsen as many economists predict the eurozone sinking into recession at the end of this year and into 2023.