ECB policymakers bring rate hike debate into the open

FRANKFURT, Oct 30 (Reuters) - The European Central Bank may need to raise interest rates further to counter high inflation and prevent it from spiralling into wages, ECB policymakers said on Friday, hours after the bank left rates unchanged. 

The ECB debated a hike on Thursday, but ultimately unanimously decided against the move on the premise that an energy price-driven inflation surge is not yet generating dangerous second-round effects.

But commentary on Friday suggested that a hike may have only been delayed and such a move in December was on the cards.

"Monetary policy ... can and should prevent (price increases) from becoming entrenched in the expectations and behaviour of households and firms, triggering a wage-price spiral that would be costly to stop," Bank of Italy Governor Fabio Panetta said.

"With inflation set to remain above target for an extended period and risks skewed to the upside, further increases in the policy rates could prove necessary," he said in Rome.

Investors see a two-in-three chance of a hike in December, and expect almost three rate increases in the coming year on top of the two hikes earlier this year, according to LSEG data.

Martin Kocher, Austria's central bank chief, echoed Panetta's comments.

"If the situation does not improve in the near future, the monetary policy environment suggests a response will be necessary," Kocher said in a blog post published on Friday.

"The inflation risks have clearly increased. But neither acting prematurely nor waiting and doing nothing will ensure price stability," Kocher added.

Euro zone inflation hit 3.8% last month, nearly twice the ECB's target, and could accelerate further in the coming months on a renewed surge in energy costs and rising food prices.

An ECB survey published on Friday suggests that inflation may accelerate this year and next by more than earlier predicted, and may not return to target until 2028. 

"The risk that price increases will be faster and more sustained than projected remains significant," Estonian central bank chief Ülo Kaasik said.

"It is therefore understandable why financial markets are counting on further interest rate hikes from the European Central Bank," he said.

In a note of caution, Panetta added that the ECB should take into account the recent surge in bond yields, which is already making borrowing more expensive, when "gradually calibrating monetary policy."

(Reporting by Francesco Canepa, Francois Murphy and Balazs Koranyi; Editing by Tomasz Janowski and Xevi Fontdegloria)