Europe's Central Bank to hike interest rates in July amid soaring inflation

The move underlines concerns about surging consumer prices, which rose by an annual rate of 8.1% in May, the highest since statistics started in 1997.

The European Central Bank said Thursday that it would carry out its first interest rate increase in 11 years next month, followed by another hike in September, as it catches up with other central banks worldwide in pivoting from supporting the economy during the pandemic to squelching soaring inflation.

The surprise announcement came after the bank's 25-member monetary policy council met in Amsterdam, saying inflation had become a “major challenge” and that those forces had “broadened and intensified” in the 19 countries that use the euro currency. It will end its economic stimulus program and raise rates by a quarter-point in July.

The move underlines concerns about surging consumer prices, which rose by an annual rate of 8.1% in May, the highest since statistics started in 1997. The bank’s target is 2%.

The ECB left open the possibility that it would make a more drastic, half-percentage-point increase in September rather than the more usual quarter-point adjustment, saying that if the inflation outlook persists or deteriorates, “a larger increment will be appropriate at the September meeting.”

Bank President Christine Lagarde said the increases would not be the last. She said the rate-setting council anticipates “a gradual but sustained path of further increases” after September.

The U.S. Federal Reserve raised its key rate by a half-point May 4 and has held out the prospect of more large increases. The Bank of England has approved rate hikes four times since December.

The prospect of rapid increases has sent shudders through stock markets, as higher rates would raise the returns on less risky alternatives to stocks. Rate hikes in Europe also are complicated by weakening prospects for growth as Russia’s war in Ukraine sends shock waves through the economy, particularly through rising energy prices.