"The key question now is whether the energy price shock will increasingly feed through to wages and other prices."

“The ECB’s decision to leave key interest rates unchanged had been anticipated by most market observers. Whilst inflation in the eurozone rose to 3.8 per cent in September – well above the two per cent target – the rise in prices continues to be driven largely by high energy prices. The ECB can do little to counter this with higher interest rates. At the same time, rising yields on the bond markets have already tightened financing conditions. The key question now is whether the energy price shock will increasingly feed through to wages and other prices. Should inflation become entrenched across the board, the ECB is likely to implement further interest rate rises. A pause in interest rate rises therefore does not yet mean the all-clear.”