ECB Warns of Energy Shock, Higher Food Prices Amid Global Economic Uncertainty

European Central Bank (ECB) President Christine Lagarde has sounded an alarm about the risk of an energy shock, which could lead to higher food prices and inflation. The war in Iran and ongoing tensions in the Middle East have created a new wave of uncertainty for the European economy, fueling inflationary pressures primarily through surging energy prices.

Lagarde warned that an energy shock could intensify and its impact on prices and wages may be larger than current projections. She noted that the effects of the energy shock are not limited to fuel and electricity costs, but may gradually extend to food prices, transportation, and other essential goods. The ECB President also mentioned the El Niño weather phenomenon, which adds further pressure.

The ECB has raised its interest rates by 0.25% to 2.5%, pointing out that conflict in the Middle East continues to generate inflationary pressure expected to remain above target for a prolonged period. According to the baseline scenario of the ECB staff projections, headline inflation is projected to average 3% in 2026, 2.5% in 2027, and 2.1% in 2028.