Skyrocketing energy prices driven by the war in the Persian Gulf are complicating inflation assessments across major central banks, leaving economists divided on whether higher fuel costs will translate into sustained price pressures or second-round effects on wages and services.
At the European Central Bank, expectations are firmly anchored around a 25-basis-point rate increase at its September policy meeting, which will be held in Berlin rather than the usual Frankfurt venue. The move would lift the deposit rate to 2.5 percent. ECB President Christine Lagarde noted in June that several board members had discussed the possibility of another hike, but stressed the Governing Council would wait to monitor incoming data before deciding. Observers interpreted the caution as a signal the bank was preparing to move.
Some analysts, however, argue the hike is more precautionary than essential. Laura Cooper of asset manager Nuveen pointed to cooling signals in both the manufacturing and services purchasing managers’ indexes, alongside moderating negotiated wage growth and falling survey-based inflation expectations. “Underlying price pressures appear to be easing,” she wrote.
Across the Atlantic, the Federal Reserve’s Open Market Committee meets next week, and most economists do not expect a rate change, keeping the federal funds rate at 3.50–3.75 percent. US inflation data released earlier in July showed headline inflation at 3.4 percent and core inflation at 2.5 percent, both down from prior months. A surprisingly strong non-farm payrolls report briefly revived speculation about a hike, but consensus has since cooled.
Bank of America stands apart, forecasting an additional 75 basis points of tightening by year-end. The bank cited solid economic growth, a balanced labor market, and persistently high inflation as reasons the Fed cannot afford to stand still. A pre-Midterm rate hike could also bolster the Fed’s credibility and reinforce its political independence, analysts added.
In Switzerland, the National Bank faces a different calculus. Second-quarter gross domestic product grew 1.5 percent, exceeding economist forecasts and surpassing potential growth, according to Swiss Life. Despite the strong data, two-round effects from higher energy prices have yet to materialize at either the producer or consumer level. Annual inflation in August stood at just 0.8 percent. The SNB is expected to maintain its expansive near-zero policy.
A recent appreciation of the euro against the franc has provided modest relief for Swiss exporters, though import-driven inflation remains negligible.
