ECB Holds Rates Despite Energy Price Surge

Overview

• The Governing Council kept its three key interest rates unchanged at the April 30 meeting and said future moves will be based on incoming data.
• The bulletin links the jump in prices to the Middle East conflict, noting Brent crude near $120 after a 9% rise and a 10.9% yearly increase in energy costs.
• The ECB says risks have intensified, with higher pressure on inflation and weaker prospects for growth as energy volatility and uncertainty persist.
• Model results indicate a new energy shock would add 0.4 percentage points to 2027 inflation and trim growth by 0.1 points, while extra consumer uncertainty would cut growth by 0.3 points.
• Households and firms are becoming more reluctant to spend as real incomes are squeezed, with lower income families bearing the largest direct hit from higher energy bills.