Makhlouf: ECB raises rates, warns on persistent inflation

The ECB's Governing Council unanimously decided on June 16, 2026, to raise its main policy rate, the Deposit Facility Rate, by 25 basis points to 2.25 percent.

This decision responds to inflation pressures stemming from higher oil prices and supply disruptions linked to the Middle East conflict.

Euro area headline inflation reached 3.2 percent in May, up from 1.9 percent in February, with energy inflation alone close to 11 percent.

Global supply chain pressures intensified in March and April, indicating further upward pressure on goods prices.

Makhlouf noted that the current economic backdrop, with weaker demand and hesitant private investment, differs from the 2022 energy shock, which could influence transmission to the broader economy.

European manufacturers also face challenges from China's shift to high-tech exports.

Makhlouf warned against complacency, noting clear upward price pressures and potential long-term energy supply disruption.

ECB research indicates euro area consumers sharply revised short-term inflation expectations upward from 2.5 to 4 percent in March, while medium-term expectations remained stable around 2.1 percent.

Consumers are highly sensitive to price developments, having experienced the post-pandemic inflation surge.

The rate hike does not automatically signal an extended tightening cycle, but policy remains data-dependent.

Latest staff projections forecast inflation averaging 3 percent in 2026, peaking at 3.4 percent in the second half, and then declining towards target in 2027 and 2028.