ECB Warns Inflation Shock Will Be Longer-Lasting Due to Global Events

European Central Bank President Christine Lagarde has warned that the current inflation shock will be longer-lasting due to ongoing global events. The conflict in the Middle East and destruction of refining capacity, especially in Russia, have led to increased energy costs, driving up all prices.

Lagarde stated that the current situation requires a reaction from the ECB, which raised interest rates for the second time since the Iran war sent oil and gas prices soaring. The deposit rate now stands at 2.5%, a level some see as the upper end of the neutral range.

The ECB's projections show faster inflation in 2027 and 2028, with the latter now slightly above target. Growth forecasts were also lifted due to the resilience of the euro-area economy to headwinds such as US trade policies.