ECB set to hike as Iran war fuels fresh inflation fears
The European Central Bank is expected to raise its policy rate to 2.5% on Thursday, per Reuters, as the Iran conflict drives oil above €91 ($100) a barrel and revives inflation concerns. The move aims to head off an energy-driven price surge in the fuel-importing euro zone, where inflation remains above 3%.
Bottom line — Economists at Amundi and Generali see further tightening if inflation stays sticky, per Reuters.
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- Brent crude touched €91 ($100) a barrel on Wednesday, up over 60% year-to-date, per MarketWatch, after US strikes on Iranian oil vessels and Houthi attacks on Saudi facilities.
- The ECB is also expected to raise its 2026 growth projections but may push back the timeline for inflation to return to its 2% target, per Reuters.
- Analysts at Barclays warn that core goods prices are gaining momentum and producer prices are rising faster than consumer prices, per Reuters.
- ECB President Lagarde is likely to maintain a hawkish wait-and-see stance, leaving the door open to further tightening, per Generali Investments economist Martin Wolburg.
- Financial markets are pricing in another two or three hikes by the end of next year, per Reuters.
- The ECB faces a 'genuine dilemma' as an oil shock could push inflation higher while growth weakens under US tariffs, per ING economists cited by CNBC.
- ECB council member Pierre Wunsch said officials would avoid reacting hastily to energy price moves, per CNBC.