Energy costs are the primary focus, with markets widely anticipating the European Central Bank will raise interest rates on Thursday.
The Eurozone is a major importer of energy, making it particularly vulnerable to the impact of rising oil prices. Core inflation also rose in April, representing another significant concern for the ECB.
On Monday, February 23, 2026, ECB President Christine Lagarde spoke at the National Association for Business Economics Economic Policy Symposium in Washington, D.C.
Markets expect the ECB to increase its benchmark rate on Thursday. Policymakers are compelled to act in the face of the risk of second-round inflation effects stemming from persistently high energy prices.
Unlike the U.S. Federal Reserve, the European Central Bank has a single core mandate: to maintain inflation close to its 2% target. Recent data shows a resurgence in both headline and core inflation measures across the Eurozone.
Driven by a year-on-year surge in energy prices of 10.9%, Eurozone headline inflation rose to 3.2% in April. The region's heavy reliance on energy imports means tensions in Iran pushing up oil prices are placing significant strain on its economy.
Concurrently, core inflation climbed to 2.5% in April, propelled by rising service sector costs. The ECB is highly alert to this development, viewing it as a potential early sign of second-round inflation effects taking hold.
The ECB is also concerned that tightening monetary policy could push the already sluggish Eurozone economy into an outright recession. Nevertheless, markets still anticipate the ECB's Governing Council will raise the key deposit rate by 25 basis points to 2.25%.
How many more rate hikes are expected?
Market observers will also closely scrutinize the ECB's updated inflation and economic growth forecasts. Current market pricing suggests the central bank could implement a total of three more rate hikes during the remainder of the year.
In a research note at the end of May, Sven Jari Stehn, Chief European Economist at Goldman Sachs, wrote: "Compared to the March meeting, we expect ECB staff to revise down their growth forecasts for 2026-2027 and revise up their headline and core inflation projections. This reflects a more persistent energy shock and a further intensification of its indirect pass-through to prices."
"Since the March policy meeting, our tracked energy price index (an average of oil and gas prices) has increased by about 12% over the forecast horizon."
Anatoli Annenkov, Senior European Economist at Société Générale, stated in a May note: "The core inflation forecast is more important to watch, especially for 2027."
"This projection will fully reflect the ECB research team's assessment of second-round inflation effects, particularly in light of the weakening economic activity data observed since March."
In a research note earlier this month, Marc Wall, Director at Deutsche Bank Securities, said: "We expect the ECB to not push back strongly against market pricing for rate hikes. The central bank will not want the market to interpret a June hike as a one-and-done move."
Comments