Policymakers at the European Central Bank (ECB) have expressed growing concern about the potential for another surge in inflation later this year and are considering raising interest rates to address the risk. According to minutes from the ECB’s July meeting, some members of the governing council supported an immediate increase in borrowing costs, viewing pre-emptive tightening as a way to mitigate the impact of rising energy prices.

The ECB, led by President Christine Lagarde, held its key interest rate steady at 2.25 percent in July after raising it for the first time in three years the previous month. The earlier hike followed a spike in global oil prices driven by escalating tensions between the United States and Iran. Despite the pause in July, the minutes indicated that several policymakers did not oppose another rate increase at that meeting, citing incoming data that strengthened the case for further tightening.

“These members stressed the low likelihood of a situation in which a further rate hike would not be warranted,” the minutes stated, noting evidence that acting sooner could reduce costs and lower the risk of falling behind inflation trends.

Market analysts widely anticipate the ECB will raise rates to 2.5 percent at its next meeting scheduled in two weeks. Inflation across the eurozone’s 20-member bloc rose slightly from 2.8 percent to 2.9 percent in July, edging further above the ECB’s target of 2 percent over the medium term. Increasing gas prices in Europe, which have hit three-year highs due to low fuel stocks and upcoming winter demand, add to concerns that consumer price growth could accelerate toward the end of the year.

Economic growth across the region has been more robust than expected, with average growth of 0.4 percent in the second quarter—the strongest since early 2025. The ECB described the economic outlook as “surrounded by high uncertainty” but noted that recent data offered some reassurance, and downside risks to growth had diminished as confidence measures improved.

At the same time, risks to inflation were highlighted as significant and tilted to the upside, prompting caution among policymakers. European oil prices recently dropped after exceeding $100 per barrel last month, but uncertainties regarding energy markets persist.

Isabel Schnabel, an executive board member at the ECB, emphasized that inflation was unlikely to return to target levels in the medium term without further policy tightening. Supporting this view, Carsten Brzeski, global head of macroeconomics at ING bank, noted that sustained elevated oil prices and the threat of another gas price shock would likely lead most ECB officials to favor additional rate increases.

The discussions reflect a balancing act for the ECB as it seeks to contain inflationary pressures while sustaining economic momentum in a complex and volatile environment.