ECB says inflation will stay elevated despite U.S.-Iran deal

ECB Warns Euro Area Inflation to Stay High After Iran Deal

The European Central Bank expects consumer prices in the euro area to remain well above target for the next two years even as a freshly signed U.S.-Iran peace deal brings hope of lower energy costs, ECB Governing Council member Martin Kocher said Thursday.

Speaking after the United States and Iran signed an interim peace agreement on Wednesday — a 14-point memorandum of understanding that extends a ceasefire by 60 days and provides for the reopening of the Strait of Hormuz — Kocher cautioned that lower oil prices would not quickly translate into relief for European consumers.europa

Pipeline Effects Keep Pressure on Prices

The warning reflects the ECB’s latest staff projections, published after its June 11 rate decision, which forecast headline inflation averaging 3.0% in 2026, 2.3% in 2027, and returning to the 2% target only in 2028. Core inflation, excluding energy and food, is projected at 2.5% in both 2026 and 2027.europa

ECB chief economist Philip Lane said Tuesday that the central bank would remain “proactive” in fighting inflation even after the deal brought energy prices down, noting that oil remained above pre-war levels. Firms have already absorbed higher input costs and are beginning to pass them on to consumers through food, goods, and services prices, according to the ECB’s own assessment. Services inflation rose to 3.5% in May while energy prices remained nearly 11% higher year-on-year.zentral-bank

The ECB raised its three key interest rates by 25 basis points on June 11 — its first hike in nearly three years — bringing the deposit facility rate to 2.25%. Bundesbank President Joachim Nagel said afterward that the central bank was “keeping all options open” for a further increase in July.europa

Oil Markets Ease but Uncertainties Persist

Brent crude fell to its lowest level since the start of the Iran conflict on Thursday as markets priced in a resumption of shipments through the Strait of Hormuz, which Iran effectively blocked after the war began in late February. However, analysts have cautioned that full normalization of shipping could take months.reuters

IMF Managing Director Kristalina Georgieva said this week that the global economy had so far weathered the Middle East shock but warned that oil prices remained roughly 30% above pre-war levels and that an intensification of the conflict posed “a clear risk to global growth”. She has previously noted that every sustained 10% rise in oil prices adds about 40 basis points to global headline inflation.economictimes

Kocher, who took a cautious tone on the prospect of further rate increases, noted that weeks remain before the ECB’s next policy meeting at the end of July. “A lot can change in that timeframe,” he said.usnews