ECB account details mixed inflation signals while traders favor October hold

The ECB’s September meeting account, published Thursday, lays out competing signals for policymakers: persistent energy costs raised concern about upside inflation risks, while higher long-term yields could restrain growth and inflation. Traders still strongly favor the ECB leaving rates unchanged at its October meeting, though the hold is no longer close to certain.

The account adds context but does not explain the sharp shift in expectations on Tuesday. Bets on a hold fell abruptly, while expectations for a 25-basis-point increase rose; a hike remains a long shot. Reuters, via Euronext, reported that policymaker Olli Rehn had said the day before that energy inflation had not spread to other goods and services, and that higher bond yields could slow growth and dampen price pressures. His remarks are a possible explanation for the repricing, but reporting has not directly linked them to traders’ bets.

The hold had been all but certain from Friday through Monday, with only a modest decline before Tuesday’s sudden drop. The account says policymakers did not commit to a preset path for further tightening, while acknowledging that the energy shock had increased inflation uncertainty. The ECB raised its deposit rate by 25 basis points to 2.50% on September 10. Eurostat’s flash estimate put euro-area inflation at 3.8% in September, up from 3.2% in August, with energy inflation rising to 18.8%.

The next key release is Eurostat’s full September inflation report on October 16, ahead of the October 28–29 meeting. The ECB says it will assess incoming data and the inflation outlook meeting by meeting. Evidence that energy costs are spreading into wages or other prices could strengthen the case for a hike; limited pass-through or signs that higher borrowing costs are restraining growth could support a hold.