ECB expects significantly higher inflation this year

The European Central Bank (ECB) lets the Key interest rate remained unchanged after the outbreak of the Iran war and the associated oil price shock 2.0 percent and is refraining from raising interest rates for the time being. The decision is unanimously fallen, said ECB President Christine Lagarde on Thursday after the meeting of the ECB Governing Council.

The war in the Middle East has become too clear uncertain prospects led, said Lagarde. It results in upside risks for inflation and downside risks for economic growth. The medium-term consequences depend heavily on the duration and intensity of the war. In any case, the ECB Council is determined to ensure that inflation stabilizes at the target value of two percent in the medium term. We see ourselves well prepared for this, said Lagarde.

2.6 percent inflation rate

For 2026, central bank experts expect overall inflation to average 2.6 percent in the euro area and thus significantly higher than the 1.9 percent that was previously assumed. The reason for this is that rising energy prices. You should, among other things, access the Food prices penetration and also second-round effects, for example increased wage demandsentail. In the following years, inflation should approach the target value again. For 2027 will be 2.0 percentfor 2028 2.1 percent predicted.

Less growth

The central bank experts revised the forecasts for economic growth in the euro area downwards. For this year they are assuming average 0.9 percent out of. In December the estimate was still at 1.2 percent. Low unemployment, solid corporate balance sheets and public spending on defense and infrastructure should continue to support growth, it said. For 2027, the ECB expects growth of 1.3 percent2028 with 1.4 percent.

Alternative scenarios

The central bank experts also designed alternative scenarioswhich assume a prolonged war in the Middle East and permanently higher energy prices. The effect on inflation and economic growth differs significantly. In the worst case, the inflation rate could rise this year 4.4 percent rise and economic growth 0.4 percent sink.

It’s already the one sixth interest break in series. Previously, the central bank had halved the key rate from four to two percent from mid-2024 to mid-2025. The next monetary policy meeting of the Governing Council will take place on 30. April instead of. Market observers are expecting up to two interest rate increases this year.