ECB Officials Signal Possible December Rate Hike as Inflation Risks Mount

European Central Bank policymakers said Friday that further interest rate increases may be necessary to contain inflation and prevent a wage-price spiral, just hours after the bank left rates unchanged. Investors now price a two-in-three chance of a December hike, according to LSEG data. Bank of Italy Governor Fabio Panetta said "further increases in the policy rates could prove necessary," citing upside inflation risks. Austria's central bank chief Martin Kocher echoed the view, warning that "inflation risks have clearly increased." Euro zone inflation hit 3.8% last month, nearly double the ECB's target, and an ECB survey published Friday suggests it may not return to target until 2028. The ECB unanimously held rates Thursday, judging the energy-driven inflation surge had not yet generated dangerous second-round effects. Panetta cautioned that the bank should account for surging bond yields, which are already raising borrowing costs, when calibrating policy.