The European Central Bank’s comfortable start to 2026 was disrupted by a severe energy shock that pushed inflation expectations higher. Economists still expected the ECB to hold its deposit rate at 2%, but a growing minority began forecasting rate increases as policymakers tried to prevent another energy-driven inflation episode from becoming entrenched.
Oil prices had risen roughly 40% as conflict disrupted a key transport route.
Behind the move
A Reuters poll found 38 of 60 economists still expected the deposit rate to remain at 2% through 2026, but 21 forecast at least one hike. Inflation was expected to run near 3% in coming quarters, well above the ECB’s target.
The euro area is especially sensitive to imported energy because many member states rely heavily on external fuel supplies. A higher oil or gas bill acts like a tax on households and firms, weakening growth while raising headline inflation. Monetary policy therefore faces a trade-off similar to the one seen after the 2022 energy crisis.
Why this matters
The ECB’s credibility is part of the calculation. Policymakers remember criticism that they responded too slowly when inflation surged earlier in the decade. Moving too quickly now, however, could amplify a growth slowdown caused by the same energy shock. That tension explains why market pricing became more hawkish than the median economist forecast.
Next
The ECB will focus on second-round effects in wages and services. If underlying inflation stays contained, officials can tolerate a temporary headline overshoot. If energy costs begin to reshape wage negotiations and pricing behavior, a measured rate increase becomes more likely.