EU's Central Bank: Expect Prolonged Inflation

The European Central Bank (ECB) continues to pursue a cautious monetary policy amid significant uncertainty in the :censored:6:cdd6bbaa89: energy market. ECB President Christine Lagarde points out that developments in the eurozone are strongly influenced by external shocks beyond the central bank’s control, which may result in more prolonged inflation.

The backdrop is the ongoing energy crisis, with the conflict in Iran having effectively closed the Strait of Hormuz. According to the International Energy Agency, this is the largest disruption to :censored:6:cdd6bbaa89: oil supply in modern times.

Despite using strategic reserves and alternative routes, the supply loss is estimated at about 13 million barrels of oil per day, equivalent to approximately 13 percent of :censored:6:cdd6bbaa89: consumption.

In a keynote address by Christine Lagarde, President of the European Central Bank, at the annual reception of the German Banking Association on the occasion of its 75th anniversary, she emphasized that two factors will be crucial for future monetary policy. These are the duration of the disruptions and the extent to which the energy price shock feeds into broader inflation.

At the same time, she notes that markets so far seem to be pricing in a relatively short-lived disruption scenario. Natural gas prices in Europe are also below the ECB’s previous forecasts, partly due to mild weather in China and increased coal use in Asia.

Inflation in the euro area rose in March to 2.6 percent, up from 1.9 percent in February, according to Eurostat. Energy prices showed the clearest increase, reversing from minus 3.1 percent to plus 5.1 percent year-on-year. Services and food also contributed to the increase, while industrial goods excluding energy continued to moderate.

Meanwhile, the European Central Bank has revised down its growth forecast for 2026 to 0.9 percent and expects inflation to average 2.6 percent for the year. Lagarde emphasizes that the bank stands ready to act if necessary, but that prevailing uncertainty justifies continued caution in the near term.