European Central Bank must act to prevent inflation from taking root, says Kazaks

Martins Kazaks, a member of the European Central Bank’s Governing Council and Governor of the Bank of Latvia, says the ECB cannot afford to let consumer price gains linger above target. In a Bloomberg interview, Kazaks described the current inflation environment as “somewhat uncomfortable” and signaled the central bank’s readiness to tighten further if the data warrants it.

Eurozone inflation is running at approximately 3%, a full percentage point above the ECB’s 2% goal.

What Kazaks actually said, and what he didn’t

Kazaks was careful to avoid pre-committing to any specific action ahead of the ECB’s September policy meeting. He stressed a data-dependent approach, noting that it remains “premature” to determine exact next steps.

But he was unambiguous on one point. The ECB “won’t hesitate to act if needed” to bring inflation back to 2%.

Markets are already pricing in a near-certain 25-basis-point increase to the deposit rate at the September meeting. That would follow a prior adjustment made in June.

Despite the hawkish undertone, the euro barely moved on the remarks, ticking up roughly 0.26% against the US dollar.

The economic backdrop is mixed, but not alarming

Kazaks pointed to several bright spots that give the ECB room to maneuver without panic. The eurozone economy has shown stronger-than-expected resilience, with solid growth in Q2 and low unemployment rates across the bloc. Wage growth, one of the stickier contributors to inflation, has started to moderate.

Perhaps most importantly, inflation expectations remain anchored near the 2% target. That detail matters enormously. When businesses and consumers start expecting permanently higher prices, they behave in ways that make those expectations self-fulfilling: workers demand bigger raises, companies pass costs through more aggressively, and the whole cycle feeds on itself. The fact that expectations haven’t drifted upward suggests the ECB’s credibility is intact, at least for now.

Why the September meeting matters

Investors positioning around European assets should watch the incoming data between now and September with particular attention to services inflation and labor market indicators, which will likely determine whether the ECB’s next move is a measured step or a more forceful stride.

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