ECB’s Legarde: Higher energy costs will push up input prices
ECBs Legarde is speaking and says:
- climbing energy costs will push up input prices.
- Price increases may then be passed to consumer.
- We should be well-placed to react, when needed
Current rates: The ECB at their last meeting last week held rates unchanged, with the main refinancing rate at 2.15% and the deposit facility at 2.0%, as policymakers adopted a cautious stance to assess the impact of the Iran/Middle East war on inflation and growth
Key driver of uncertainty: The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks to economic growth, with a material near-term impact through higher energy prices.
Market pricing for the next move: Markets are fully pricing in three ECB rate hikes in 2026, with the first potentially arriving as early as June — a notable shift driven by the energy price shock. Commentary has been more hawkish
ECB’s own stance: The ECB is following a data-dependent, meeting-by-meeting approach with no pre-commitment to a particular rate path. Its decisions will be based on the inflation outlook, incoming data, underlying inflation dynamics, and the strength of monetary policy transmission.
Inflation outlook: In the ECB’s March baseline projections, headline inflation is seen averaging 2.6% in 2026, 2.0% in 2027, and 2.1% in 2028 — revised up compared to December, largely because energy prices will be higher due to the Middle East conflict.
Growth: Staff expect economic growth to average 0.9% in 2026, 1.3% in 2027, and 1.4% in 2028 — a downward revision reflecting the global effects of the war on commodity markets, real incomes, and confidence.
In short, the ECB is in a tricky spot: energy-driven inflation is pushing market expectations toward hikes, while growth risks pull the other way. The June meeting will be closely watched, especially with new staff projections expected.
This article was written by Greg Michalowski at investinglive.com.