ECB’s Kazāks Keeps September Rate Hike Decision Open as Inflation Hits 2.9%

Why a further rate increase remains possible

The strongest argument for another hike is that inflation remains above target and has moved higher. Euro-area annual inflation rose from 2.8% in June to 2.9% in July 2026, according to Eurostat’s flash estimate.

Energy prices were the clearest source of renewed pressure: energy inflation was estimated at 10.0% in July, up from 8.5% in June. Services inflation also increased to 3.3% from 3.2%. Food, alcohol and tobacco inflation eased to 1.2%, while non-energy industrial goods inflation rose to 0.9%.

A Reuters report put underlying inflation—excluding volatile food and energy prices—at 2.5% in July, up from 2.4% in June, with services identified as an important contributor. That combination gives policymakers a reason to remain alert even though the headline increase was modest.

Why the case for hiking is not straightforward

Kazāks also said there were arguments both for and against raising rates further. The supplied reporting does not establish a complete list of his arguments against a hike, so they should not be presented as a definitive policy blueprint.

The broader trade-off is clear from the available evidence: higher rates could help contain inflation, but policymakers must also assess how much existing tightening is still working through the economy and how new shocks affect growth. A separate Latvijas Banka account of Kazāks’s views describes his broader approach as cautious and data-dependent.

This makes the September decision especially sensitive to new inflation and economic data. A July reading of 2.9% strengthens the case for vigilance, but by itself does not prove that another rate increase is inevitable.

Why Kazāks rejected firm forward guidance

Kazāks said forward guidance is counterproductive amid uncertainty. His reasoning, as reported, is that policymakers should not make a detailed promise about future rates when conditions can shift rapidly.

For markets, that leaves a wider range of possible outcomes. Investors may still form expectations about a quarter-point deposit-rate increase, but those expectations are market pricing rather than a commitment from the ECB. The available source reporting describes markets as strongly anticipating such a move, while Kazāks himself kept the decision open.

Wages and inflation expectations

The available reports also attribute two potentially reassuring observations to Kazāks: wage growth is gradually slowing and inflation expectations remain anchored near the ECB’s target.

If sustained, slower wage growth could reduce the risk of persistent domestic price pressure. Anchored inflation expectations would likewise suggest that households, businesses and markets still broadly trust the ECB’s commitment to price stability. But these indicators do not eliminate the immediate challenge posed by higher energy costs and above-target inflation.

Bond-market pressure adds to the policy backdrop

The rate decision is unfolding alongside a difficult bond-market environment. Euro-area government bonds recently came under selling pressure, with Germany’s 10-year yield reaching a 15-year high of 3.275% before easing. French 10-year yields rose above 4.13%, their highest level since 2008, according to Reuters.

Higher government-bond yields can tighten financial conditions even before the ECB changes its policy rate. However, the supplied evidence does not independently verify every claim about record eurozone issuance, the ECB’s treatment of maturing bonds, or the precise effect of those factors on the September decision. Those issues should therefore be treated as part of the wider market backdrop, not as established reasons for a particular ECB outcome.

What to watch before September

The key question is whether upcoming data show that the July increase is mainly an energy-driven shock or evidence of broader, persistent inflation pressure. The July figures point to both elements: energy inflation accelerated sharply, while services and core inflation also remained elevated.

Kazāks’s position leaves the ECB with room to respond in either direction. If inflation pressures persist or broaden, further tightening remains available. If the data suggest that existing policy is sufficient and the shock is fading, policymakers have a case for waiting.

The clearest takeaway is therefore not that the ECB has decided to hike. It is that the bank wants markets to understand it is ready to act, while preserving flexibility until the September evidence and outlook are clearer.