The European Central Bank is gearing up for its second interest rate increase of 2026, with markets pricing in a 100% probability of a 25 basis point hike that would push the deposit facility rate to 2.50%. The move, expected around September 10, comes as eurozone inflation continues to run well above the ECB’s 2% target, fueled in large part by energy costs that refuse to cooperate with central bankers’ hopes.
ECB President Christine Lagarde has framed the rate increases as necessary responses to persistent price pressures, though analysts have taken to calling them “insurance hikes.”
The inflation problem that won’t quit
Euro-area inflation clocked in at 3.0% in August 2026. That’s a full percentage point above the ECB’s target. The ECB’s own projections peg headline inflation to average 3.0% for all of 2026.
A major culprit: energy prices. Brent crude has surged to nearly $100 per barrel, driven by geopolitical tensions tied to the US-Israeli conflict involving Iran.
