ECB Lifts Rates as Energy Shock Ripples Through European Economy

The bank’s main deposit rate now sits at 2.25 percent. President Christine Lagarde confirmed that the institution is grappling with a prolonged energy shock, noting that price pressures are no longer confined to fuel and food. Costs for services—including hospitality, maintenance, and personal care—have climbed from 3 to 3.5 percent in recent months, a clear indicator that inflation is broadening its reach.

The ECB’s latest staff projections highlight the volatility surrounding the regional outlook. Officials modeled three potential trajectories, ranging from a mild resolution to a severe, prolonged disruption in the Gulf that would shave an additional 0.3 percent off economic growth. Lagarde acknowledged that the current reality has already eclipsed the bank's mildest forecasts. Board member Isabel Schnabel previously signaled that the situation has intensified beyond the adverse scenario, which had originally assumed a relatively quick stabilization of oil prices.