ECB highlights inflation concerns and geopolitical impacts on energy prices

The European Central Bank (ECB) held a Petersberg Summer Dialogue on June 27, 2026, in Petersberg, where Isabel Schnabel, a member of the ECB Executive Board, addressed inflation concerns and energy market developments.

Oil prices are expected to remain persistently high due to the gradual reopening of the Strait of Hormuz, with oil futures reflecting pre-war and latest observations. The probability of reopening by August 2026 remains uncertain but has increased following a peace deal announcement on June 12, 2026.

Uncertainty remains high, but the announced peace deal reduces the likelihood of negative scenarios. Oil and gas price projections have been updated, with energy shocks impacting the euro area more severely than previous oil price shocks, although less intensely than in past crises.

The energy shock has affected the euro area’s terms-of-trade index and increased oil intensity of real GDP. Staff projections indicate lower euro area growth and higher inflation due to the Iran conflict, with inflation expected to approach or exceed 2% in the medium term.

Private consumption and consumer confidence are under pressure from higher energy costs, with recent data showing a decline in nominal consumption growth across various goods categories. Government investment, particularly in defense and infrastructure, supports economic growth, alongside a global AI boom.

The labour market remains resilient, with a stable unemployment rate and tight supply conditions. However, energy price shocks are likely to feed into broader inflationary dynamics through direct effects, expectations, and wage-price interactions.

Inflation expectations have risen, but wage pressures remain subdued. The ECB is expected to continue raising interest rates to bring inflation back to the 2% target over the medium term. Financial stability risks have increased due to stretched asset valuations and higher leverage, with elevated risk premiums observed in equity and bond markets.

Further details and projections are available in the official ECB publication.