Overview
- Senior ECB voices Isabel Schnabel and Philip Lane said on May 26 that a rate rise in June is likely or appropriate because energy-driven price pressures are proving persistent.
- European Commission and Eurogroup officials warned that oil and gas prices will remain above pre-war levels at least through the end of 2027, keeping upward pressure on consumer prices.
- The ECB’s business surveys show firms have lifted expected input costs and selling prices, and ECB staff have revised near-term inflation projections above the 2% target.
- Markets have repriced the ECB path, fully pricing in at least two hikes and assigning a significant chance of a third, which has pushed up government bond yields and borrowing costs.
- Policymakers face a tense trade-off because higher energy costs raise inflation risks while growth forecasts have been cut to about 0.9% for 2026, a mix that could tighten household budgets through higher mortgage and loan rates.