An increase in interest rates by the European Central Bank at its policymaking committee meeting next week now looks a safe bet. The latest figures, published on Tuesday, show that euro zone inflation rose to 3.2 per cent in May up from 3 per cent in April and the highest rate since Autumn 2023. A quarter point rise in ECB rates is now on the cards and it will be interesting to see what hints it gives about the outlook for the rest of this year. The case for an increase is based on the knock-on impact of events in the Gulf. There is nothing that the ECB can do about the price of oil and gas and the direct hit on euro zone economies. What it is trying to combat is the emergence of wider inflationary pressures. Worryingly, services inflation, which gives an indicator of price pressures emerging within economies, rose to 3.5 per cent last month, from 3 per cent in April. A move by the ECB does appear justified. But, beyond indicating its willingness to act further if needed, its president Christine Lagarde would be wise to say that future decisions will depend on what the economic evidence shows. There are signs of rising inflation, but as yet nothing on the scale of 2022 and 2023, following the full-scale Russian invasion of Ukraine. Meanwhile, euro zone economic growth remains subdued.Much will depend on the uncertain outcome of talks currently underway on the Gulf conflict. An inflationary overhang is inevitable, even if there is some diplomatic solution which opens the Strait of Hormuz and helps bring down energy costs. If the Strait remains closed, then the challenge for the ECB will increase, as the euro zone would be threatened by higher inflation and lower growth at the same time. The key question for mortgage holders and other borrowers is the scale of interest rate increase now likely. As of yet, this is impossible to answer. However, interest rates remain relatively low – the ECB’s key deposit rate is just 2 per cent – and so further upward moves are quite possible. For now Irish borrowers will hope it is a case of “ gently does it” from Frankfurt.