Overview
- Senior ECB officials publicly said a rate increase in June is likely, with Isabel Schnabel telling Reuters on Tuesday that the shock is persistent and a June hike will be needed.
- EU officials forecast oil and gas prices will remain above pre-war levels through the end of 2027, a projection they say will keep upward pressure on consumer prices.
- The ECB’s quarterly survey shows large firms have sharply raised expected input costs and plan to lift selling prices to about 3.5%, signaling second-round inflation effects.
- Markets have reacted by pricing in at least two policy rate hikes over the next year and roughly a 50% chance of a third, lifting bond yields and raising borrowing costs for households and companies.
- Policymakers warn the energy shock will weigh on growth and complicate policy choices, with official forecasts cut to about 0.9% for 2026 and models showing a near one percentage-point hit to cumulative growth in 2026–27.