- Lead. ECB Governing Council member Martin Kocher said on Thursday that the central bank “must prevent excessively high inflation from becoming entrenched,” stiffening the case for a prolonged period of restrictive rates even as the eurozone economy slips back toward contraction.
- Fact. Core eurozone inflation rose to 2.5% in August, above the 2.4% analyst forecast, while the September flash composite PMI fell to 48.9 — below the 50-point threshold that separates expansion from contraction.
- Stake. With the ECB already at a 2.5% deposit rate and energy prices again rising on Middle East disruptions, Kocher’s comments signal that any rate relief for eurozone households and businesses may remain out of reach through early 2027.
Speaking on Thursday, Martin Kocher — Austria’s central bank governor and a member of the ECB’s rate-setting Governing Council — told a Vienna conference that the ECB must prevent “excessively high inflation from becoming entrenched,” in remarks reported by Newsquawk. He described the eurozone economy as still fragile, while conceding that momentum had strengthened somewhat since the summer.
Data Dependency at the Forefront
Kocher indicated that decisions at upcoming ECB meetings in autumn will hinge on incoming economic data, with the clear objective of returning inflation to the ECB’s 2% target “on a sustainable basis.” He underscored how geopolitical events — particularly Middle East disruptions — can feed through into energy prices and, in turn, broader inflation dynamics, a reference to the ongoing US-Iran military campaign that has kept Brent crude elevated.
The ECB’s own September projections, published after the September 10 rate decision that lifted the deposit rate to 2.5%, forecast headline inflation averaging 3.0% in 2026, falling to 2.5% in 2027 and 2.1% in 2028 — meaning the central bank’s target is not expected to be met sustainably for at least two years. Those projections were revised upward for 2027 and 2028 compared with June’s outlook.
A Fragile Growth Backdrop
The hawkish signals arrive against a deteriorating growth picture. The eurozone’s September flash composite PMI fell to 48.9, returning the bloc to contraction territory for the first time since the spring. Manufacturing led the decline, with new export orders weakening sharply as trading partners in Asia and North America absorbed the effects of elevated tariffs and slowing investment.
The ECB raised its key rate to 2.5% on September 10, the highest level in the common currency’s history, following a unanimous vote among Governing Council members. Kocher said then that the outlook remained highly uncertain. His remarks on Thursday suggest the council’s mood has not shifted toward easing.
Market Reaction
European government bond yields ticked higher after Kocher’s comments, with the two-year German Schatz yield rising around three basis points. Traders in overnight index swaps pared back bets on a rate cut before the spring of 2027. The euro edged up slightly against the dollar, as the hawkish tilt contrasted with the Federal Reserve’s own rate rise last week to a range of 3.75%-4.00%, which had already tightened financial conditions globally.
Kocher’s statement, brief as it was, matters because it reflects the council’s dominant view rather than an outlier. The ECB meets next on October 30. Absent a sharp drop in September inflation data or a sudden deterioration in bank lending, another hold or even a further hike remains on the table.