With Inflation on Rise, ECB Readies Tougher Action

The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images
The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images
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With Inflation on Rise, ECB Readies Tougher Action

The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images
The European Central Bank is pushing back against market expectations that it will lift borrowing costs in 2022 - AFP via Getty Images

The European Central Bank is set to announce the end date to its bond-buying stimulus on Thursday, as concerns over the accelerating pace of inflation in the eurozone grip policymakers.

The stop is a prelude to the ECB hiking rates for the first time in over a decade in the weeks that follow, turning the page on an era of ultra-loose monetary policy, AFP said.

Inflation in the eurozone rose to 8.1 percent in May, the highest level in the history of the currency club and well above the ECB's own two-percent target.

The surge has largely been driven by the war in Ukraine, which has decisively pushed up the cost of energy, food and raw materials.

Persistent price pressures have forced the ECB into an "enormous U-turn" since December, said Carsten Brzeski, head of macro at ING bank.

From saying inflation would be "temporary" and warding off interest rate hikes in 2022, the ECB is now racing to catch up with other major central banks in the United States and Britain.

With inflation picking up, "the only really interesting question is why they don't start hiking rates immediately instead of waiting until July", Brzeski said.

- 'Lift off' -
Under pressure to show the ECB was responding to inflation, President Christine Lagarde set out the likely next steps for the central bank in a blog post in late May.

The unusually clear statement foresaw an end to the ECB's crisis-era stimulus program "very early in the third quarter".

The so-called asset purchase program, or APP, is the last in a series of debt-purchasing measures worth a total of around five trillion euros ($5.4 trillion) deployed by the ECB since 2014.

Lagarde then went on to reveal ECB policy through the second half of the year, predicting a "lift off" in rates at the governing council's next meeting in July, with the central bank bringing an end to negative interest rates by the end of September.

Of the ECB's three main interest rates, the so-called deposit rate -- which is normally the interest commercial banks would receive for parking their cash with the ECB overnight -- has been negative since 2014.

- 'Benchmark pace' -
Still up for discussion in Amsterdam, where the governing council is meeting instead of at its usual venue in Frankfurt, is the size of the first step.

Some members have called on the ECB to follow the US Federal Reserve and bring the curtain down on negative interest rates with a single half-point hike.

The head of the Dutch central bank, Klaas Knot, said in May that such a move was "clearly not off the table".

But the ECB's chief economist, Philip Lane, pushed back against suggestions of a big hike, calling 25 basis points -- or a quarter of a percentage point -- the "benchmark pace".

ECB followers will be listening carefully to Lagarde's press conference at 2:30 pm (1230 GMT) for some indication of the prevailing thinking among policymakers.

Lagarde could "give a nod to the hardliners" by leaving the door open to a steeper rise, said Franck Dixmier, head of fixed income at Allianz Global Investors.

The decision will depend to a large extent on how the outlook for the economy changes.

The ECB is scheduled to publish new economic forecasts alongside its policy decisions on Thursday.

Its previous estimates -- published in the immediate aftermath of Russia's invasion of Ukraine -- cut projected growth in the eurozone in 2022 to 3.7 percent and saw inflation rising to 5.1 percent.

Looking ahead, the ECB will be keeping a particularly close eye on any serious divergence in borrowing costs across the eurozone, as measured by the difference between yields on individual countries' bonds and those of Germany -- seen as a benchmark of stability.

Currently, the spread between Italian and German 10-year bonds is at its widest since the early stages of the coronavirus pandemic.

Lagarde has previously vowed to act "promptly" if needed, raising the possibility of designing a new instrument "in short order".



Iraq Oil Output Exceeds 5 million bpd

Majnoon oil field near the Iraqi city of Basra (Reuters)
Majnoon oil field near the Iraqi city of Basra (Reuters)
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Iraq Oil Output Exceeds 5 million bpd

Majnoon oil field near the Iraqi city of Basra (Reuters)
Majnoon oil field near the Iraqi city of Basra (Reuters)

Iraq produces more than 5 million barrels of oil per day (bpd), Oil Minister Basim Mohammed told state news agency INA on Saturday.

According to Reuters, Iraq is pushing for a higher OPEC production quota as the economic fallout from the Iran war and new investment by oil majors increase pressure on Baghdad to boost output, potentially putting it at odds with the producer group.

The conflict has hit Iraq particularly hard, forcing major export cuts and depriving the state of oil revenue, which accounted for 88% of government income last year.


IMF: Any Slowdown in AI-driven Growth Would be Factor for Central Banks

IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)
IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)
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IMF: Any Slowdown in AI-driven Growth Would be Factor for Central Banks

IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)
IMF Managing Director Kristalina Georgieva speaks during the Annual Meetings Plenary at the Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) at the Queen Sirikit National Convention Center (QSNCC) in Bangkok on October 16, 2026. (Photo by Lillian SUWANRUMPHA / AFP)

Central bankers around the world would need to consider any slowdown in AI-driven growth as they assess steps in their fight against inflation, International Monetary Fund Managing Director Kristalina Georgieva said on Friday.

Georgieva said concerns about dependence on the AI investment boom and high valuations were impacting markets around the world.

"Things are going up and down, and this is likely to continue," she told an audience at IMF headquarters in Washington, adding that the volatility would complicate the job of central banks at a time when risks to price stability had been growing.

A steep rout in technology stocks on Thursday rippled through markets on fears that ⁠the Democrats' victory ⁠in the US midterm elections would increase regulatory scrutiny of AI and slow the data center build-out, sending investors to the safety of bonds.

The political jitters are hitting an AI trade already on shaky footing due to worry about return on massive spending on AI-related infrastructure, with the meltdown spurring margin calls and spooking retail investors and hedge ⁠funds alike.

Georgieva said the AI investment boom was lifting growth in some countries, helping to offset a negative oil-supply shock triggered by the war in the Middle East, but it was also adding to inflationary pressures and financial stability concerns.

The IMF last month flagged significant growth and financial stability risks from a potential ending of the AI investment boom, among other factors, including a prolonged Middle East war. At the time, it warned that a steep drop in AI investment could lead to a sharp fall in asset prices, ultimately cutting global GDP ⁠by 1.1% ⁠by 2028, including a 1.8% drop in US output.

Georgieva did not repeat the downside forecast on Friday, but acknowledged the recent market volatility.

"Should there be a slowdown in the AI-driven growth impulse, it would need to be factored in as central banks assess the necessary steps in the fight against stubborn inflation," she said.

Democrats are planning to unleash a flood of new legislation targeting artificial intelligence systems and data-center development when they take control of the US Congress in January, Reuters reported on Friday, citing congressional aides and advocates.

That would mark a sharp shift from the Republican-led Congress, where lawmakers largely focused on promoting AI development and declined to pass legislation restricting the technology.


World Food Prices Dip in October, but Remain Higher Than a Year Ago

A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)
A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)
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World Food Prices Dip in October, but Remain Higher Than a Year Ago

A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)
A worker carries loaves of bread for sale at a bakery in the capital city of Cairo, Egypt November 4, 2026. (Reuters)

World food prices edged lower in October as weaker import demand contributed to monthly declines in cereal, dairy and meat prices, but were still nearly 6% higher than a year earlier, the United Nations' Food and Agriculture Organization said on Friday.

The FAO Food Price Index, which tracks monthly changes in international prices for a basket of food commodities, ‌averaged 133.9 points ‌in October, down from a revised ‌135.6 ⁠in September.

The index ⁠was 5.9% higher than a year earlier, but remained 16.4% below its March 2022 peak.

FAO's cereal price index fell 4.5% from September and was 12.6% lower than a year ago, as wheat and maize quotations declined. Wheat prices eased on weak import demand ⁠and improved production prospects, especially in Argentina.

"Expectations of ‌easing constraints on Black ‌Sea export flows added to the downward pressure on prices, ‌although continued disruptions to Black Sea logistics limited the decline," ‌FAO said in a statement.

Maize prices also eased after reaching a three-year high in September, pressured by the US harvest, expectations of ample supplies in South America and renewed ‌prospects of easing tensions in the Black Sea region.

Vegetable oil prices edged up 0.3%, ⁠as ⁠higher soybean and sunflower oil prices more than offset a fall in rapeseed oil prices.

Sugar prices rose 6.6%, their fourth straight monthly increase, to the highest level since December 2024, after rainfall disrupted harvesting in Brazil. They were now 28.8% above a year ago.

The dairy index fell 1.1%, as lower butter and cheese prices linked to ample supplies and subdued demand outweighed gains in milk powder.

The meat index declined 1.2%, while still slightly above its year-earlier level, as ovine and bovine meat prices fell.