ECB's Kazimir Urges More Rate Hikes as Inflation Stays Above 2%

Q: With growth forecasts falling, is the ECB's inflation fight about to push Europe's economy over the edge?

Not yet, but the risk is real if inflation stays sticky and the ECB keeps tightening into weaker growth. The ECB’s case for higher rates is straightforward: inflation is still too high and broadening beyond energy. Eurozone headline inflation was 3.2% in May, with core at 2.5% and services at 3.5%, while consumer inflation expectations for the next year have risen to 4.0%. Peter Kazimir and other hawks argue that if the bank does not act, energy-driven price shocks could spread into wages and services, making inflation much harder to reverse later. That is why the ECB raised rates by 25 basis points on June 11, taking the deposit rate to 2.25%, even as it cut growth forecasts to 0.8% for 2026 and 1.2% for 2027. The bank’s view is that the economy, while cooling, remains resilient enough to absorb tighter policy. Lagarde has said the bigger danger is letting inflation become entrenched. Still, the trade-off is getting sharper. The growth downgrade reflects the Middle East conflict’s hit to energy prices, confidence and real incomes. Some economists warn this looks uncomfortably like past policy mistakes, especially if the ECB keeps raising rates after this summer. Deutsche Bank and others see limited room for a long tightening cycle because growth is already weak. So the ECB is not pushing Europe “over the edge” yet. But it is operating close to that line: if energy shocks persist and rates rise much further, recession risk would increase materially.

3 articles · Updated · Bloomberg · Jun 12

Peter Kazimir said the ECB will need to raise interest rates further because inflation is spreading through the euro-zone economy rather than fading on its own.
Price pressures still would not return to the ECB's 2% target overnight even if a US-Iran peace deal lowered energy costs, he said, arguing intervention remains necessary.
The Slovak central-bank chief said the economy has cooled but remains resilient enough to give policymakers room to tighten policy further.
His remarks reinforce the case for a longer ECB inflation fight, with officials weighing persistent underlying price growth against slowing but still durable activity.