European Central Bank’s Kazaks signals more rate hikes ahead as inflation lingers at 3.3%

Martins Kazaks, a member of the European Central Bank’s Governing Council and Governor of the Bank of Latvia, just made it clear that the ECB isn’t done raising rates. Speaking after the central bank lifted its deposit rate to 2.5%, Kazaks argued the case for further monetary tightening is only getting stronger. The inflation problem hasn’t gone away Euro area inflation clocked in at 3.3% in August 2026. That’s well above the ECB’s 2% target, and Kazaks doesn’t see it cooling on its own anytime soon. The September rate hike, the ECB’s second increase this year, brought the deposit rate to 2.5%. But Kazaks was explicit that this level shouldn’t be treated as a ceiling. He suggested rates may need to push into genuinely restrictive territory to wrestle inflation back down. The culprit behind the stubbornly elevated price pressures is familiar: energy costs. Ongoing geopolitical conflicts in the Middle East, particularly involving Iran, have kept energy prices on an upward trajectory. Kazaks warned that the pain could spread more broadly through what economists call the “closing output gap.” When an economy is running close to full capacity, businesses pass rising costs on to consumer...