Rates stay unchanged as inflation reaches 3.8 percent
President Christine Lagarde said the European Central Bank (ECB) kept all three key rates unchanged as rising energy prices threaten higher inflation and weaker growth. Decisions remain data-dependent, with no commitment to a rate path.
Energy drives inflation higher
Lagarde and Vice-President Boris Vujčić presented the Governing Council's decision in Frankfurt.
September inflation rose to 3.8 percent from 3.2 percent in August; energy inflation reached 18.9 percent from 14.3 percent.
Excluding energy, inflation rose to 2.3 percent from 2.1 percent.
Food inflation increased to 1.3 percent from 1.1 percent and services to 3.2 percent from 3.0 percent; goods inflation fell to 1.1 percent from 1.2 percent.
Underlying inflation remained broadly stable, with no material wage response to the energy shock so far.
Compensation growth slowed to 3.3 percent in Q2 from 3.6 percent in Q1. The wage tracker projects 2.5-2.8 percent negotiated wage growth for the rest of 2026 and 2.6 percent on average in the first three quarters of 2027.
Growth meets tighter financing
The ECB sees continued Q3 expansion, supported by recovering services, AI investment and infrastructure and defence spending.
August unemployment held at 6.4 percent.
Corporate market borrowing costs rose to 4.1 percent from 4.0 percent; bank lending rates stayed at 3.8 percent.
Corporate loan growth slowed to 4.2 percent from 4.4 percent in July.
September bond issuance growth reached 4.2 percent, after 3.8 percent in August and 3.5 percent in July.
Mortgage rates rose to 3.6 percent from 3.5 percent; September mortgage lending growth eased to 3.0 percent.
Two opposing pressures
The ECB sees the energy shock raising inflation while tighter financing restrains demand and prices.
Risks to growth remain on the downside and those to inflation on the upside.
It retains its 2 percent medium-term target and stands ready to adjust all instruments to preserve monetary transmission.