ECB minutes show inflation fears despite rate hikes

The European Central Bank on Thursday published the accounts of its June 10-11 monetary policy meeting, showing that policymakers raised interest rates unanimously while flagging persistent upside risks to inflation driven by the ongoing conflict in the Middle East.reuters+1

Rate Hike and Inflation Projections

The Governing Council raised the ECB's deposit facility rate by 25 basis points to 2.25% — the first increase since September 2023 — as staff projections showed headline inflation averaging 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. The accounts revealed that "headline inflation was set to rise further over the summer and remain well above target into the first half of 2027, despite almost three 25 basis point rate hikes being priced in by money markets".ecb.europa+3

The decision was described as unanimous, with the case for a "measured adjustment" deemed "robust across a wide range of scenarios". Core inflation forecasts were also revised upward to 2.5% for both 2026 and 2027.morningstar+2

Energy Shock Driving Risks

The minutes detailed how the war in the Middle East and continued disruption to shipping in the Strait of Hormuz had reinforced expectations that oil prices would remain elevated for longer. Brent crude had fallen from a peak of $118 to around $94 per barrel by the time of the meeting but remained roughly 30% above pre-war levels. Knock-on effects were spreading to refined products, fertilizers, and plastics, feeding broader inflation pressures.ecb.europa

According to the accounts, markets assigned a 45% probability to inflation exceeding 2.5% on average over the next two years, while the probability of it falling below 1.5% was assessed at less than 15%. Interest rate markets were pricing in approximately three rate hikes by year-end, though the median expectation in the ECB's Survey of Monetary Analysts was for only two.morningstar+1

Outlook Remains Fragile

The ECB staff lowered the eurozone growth forecast to 0.8% for 2026, citing eroding real incomes and weakening confidence. The accounts noted that while recession risks remained "relatively low," the growth outlook was "sluggish" and surrounded by high uncertainty, with risks tilted to the downside.reuters+2

The next ECB policy meeting is scheduled for July 23.morningstar