The ECB is expected to raise rates as euro zone inflation climbs, with higher energy prices reviving concern about broader price pressures.
The European Central Bank is expected to raise interest rates on Thursday as a jump in energy prices puts renewed pressure on inflation and heightens concern that price increases could spread more broadly through the euro zone economy.
The expected move would lift the ECB’s key deposit rate by 25 basis points to 2.25%, according to the source report. The decision comes as headline euro zone inflation rose to 3.2% in May, while energy prices climbed 10.9% from a year earlier.
The euro zone’s heavy reliance on imported energy makes it especially exposed to elevated oil prices. The source report said the latest oil-price surge was sparked by the Iran war, adding to the challenge facing policymakers already trying to bring inflation closer to the ECB’s 2% target.
The harder question for the central bank is whether the energy shock remains concentrated in fuel and power bills or starts feeding through to wages, services and other prices. Core inflation, which strips out volatile items and is closely watched for underlying price trends, rose to 2.5% in May, driven mainly by higher services costs.
That leaves the ECB balancing two risks: moving too slowly against inflation, or tightening policy enough to tip already weak growth into recession. The central bank has a narrower mandate than the U.S. Federal Reserve, with its primary goal focused on keeping inflation near 2%.
Markets are also expected to focus on the ECB’s updated projections for inflation and growth, which could shape expectations for the rest of the year. The source report said markets are pricing in three additional rate hikes this year.
Goldman Sachs chief European economist Sven Jari Stehn wrote in a late-May note that ECB staff were expected to lower growth forecasts for 2026 and 2027 while raising both headline and core inflation projections, citing a more persistent energy shock and stronger spillover into prices.
The immediate rate decision may be the least surprising part of Thursday’s meeting. The more important signal for investors and households will be whether the ECB frames the move as a limited response to the energy shock or as part of a longer tightening path if inflation pressures keep broadening.
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