The ECB moved, and revised its own forecast upward
The ECB's Governing Council raised its three key rates on 10 September, taking the deposit facility to 2.50 per cent, the main refinancing operations to 2.65 per cent and the marginal lending facility to 2.90 per cent with effect from 16 September. The statement ties the move to the conflict in the Middle East, which it says continues to generate inflation pressures, and repeats the commitment to bringing inflation back to 2 per cent over the medium term.[1]
The table published with the decision carries more information than the rate itself. ECB staff put headline inflation at 3.0 per cent this year, 2.5 per cent in 2027 and 2.1 per cent in 2028, and inflation excluding energy and food at 2.5 per cent, 2.6 per cent and 2.3 per cent. For 2027 the core figure sits above the headline figure. The 2027 and 2028 baselines were revised upward against June while 2026 was left where it was, and the growth path was lifted too.[1]
August still puts the increase in fuel
Two August releases place the increase where the fuel is. In Ireland the annual rate rose to 3.7 per cent from 3.4 per cent, transport contributed 5.4 per cent with diesel 15.1 per cent dearer over the year at 1.95 euros a litre, and all 13 divisions of the index stood above a year earlier for a second month. In Portugal the annual rate rose to 3.3 per cent from 3.0 per cent, energy prices were 12.2 per cent higher against 8.7 per cent in July, and core inflation stayed at 2.6 per cent.[2], [3]
Put the two together and the arithmetic is uncomfortable. The ECB projects euro-area inflation excluding energy and food at 2.6 per cent for 2027, while the same measure in Portugal sat at 2.6 per cent in August without moving from July. The projection is the level a national core index has already reached while its headline was still being pushed by diesel, so the forecast assumes the fuel bill keeps travelling into prices that exclude fuel. That is a behavioural assumption about pricing and contracts, and the August data do not yet show it.[1], [3]
Which balance sheet absorbs the adjustment?
On 27 August I argued that the ECB was watching a credit acceleration fed by two different engines — working capital created by the energy shock, and longer-term investment by large firms — and that the rate decision turned on which spending each flow supported. The decision has now been taken and it applies one price to both flows. A firm borrowing to pay a fuel invoice does not shrink that invoice by paying more for the loan; the higher rate lands on its interest bill while the energy price stays where it was.[1], [4]
One conditional claim is available here, and it is narrow. If diesel stops rising through the fourth quarter, the breadth of the Irish index is the number that settles the argument: a count of divisions above a year earlier that falls back below 13 by the end of December keeps the increase in fuel, while a count that stays at 13 will mean the cost has already been passed along. The ECB's 2027 core figure of 2.6 per cent is a wager on the second reading, and the euro area will pay for that wager through the interest bill of borrowers who did not set the oil price.[1], [2]