ECB's Schnabel warns persistent oil and gas shock raises odds of further euro-area rate hikes

Persistent oil and gas pressures are reviving euro-zone inflation concerns and strengthening the case for further European Central Bank rate increases, according to a new ECB presentation by Executive Board member Isabel Schnabel that emphasized the energy shock is lasting longer than earlier scenarios assumed.

The presentation, titled “Is inflation back?”, was delivered Saturday at the Petersberger Sommerdialog in Petersberg. Its slides draw heavily on fresh market data through June 25 and June 26, beyond the cutoff for the ECB’s latest staff forecasts, and focus on oil, gas and the Strait of Hormuz after the recent Middle East conflict. The deck marks the “Start of Iran war” as Feb. 27, 2026, and a “Peace deal announcement” as June 12.

The message matters because Schnabel is one of the ECB’s top policymakers, and her public presentations are closely watched for clues about the policy outlook. It also comes just over two weeks after the ECB raised its three key interest rates by 25 basis points on June 11, lifting the deposit facility rate to 2.25% and citing stronger energy-driven inflation risks.

The slides argue that the latest energy shock has moved beyond earlier adverse scenarios used in prior Eurosystem staff work and that uncertainty remains high. One slide says, “Oil prices expected to stay persistently higher as Strait of Hormuz opens only gradually,” signaling concern that the disinflation expected after the June peace announcement may not materialize quickly.

In plain terms, the ECB presentation warns that higher energy prices do not stop at fuel bills. They can push up costs across supply chains, feed into companies’ pricing decisions, influence wage demands and lift inflation expectations among households and businesses. The deck says those channels create upside risks not only for energy inflation but also for food, goods and services prices, and it points to recent increases in inflation momentum.

That emphasis sharpens the inflation picture presented in the ECB’s June 2026 staff projections, which showed euro-area consumer inflation averaging 3.0% this year, 2.3% in 2027 and 2.0% in 2028, in line with the ECB’s medium-term target by the end of the forecast horizon. Schnabel’s slides explicitly reference those projections while arguing that subsequent market moves, especially in energy, have worsened the risk profile relative to the baseline, whose assumptions were frozen on May 21.

The presentation also makes the policy implication unusually clear. One slide states that “ECB is expected to raise rates further to bring inflation back to 2% over medium term,” underscoring that financial markets are still pricing additional tightening after the June move. The ECB’s target is 2% inflation over the medium term.

At the same time, the deck warns that a tougher inflation backdrop could collide with market vulnerabilities. Another slide highlights “Rising financial stability risks due to stretched risk asset valuations and higher leverage,” suggesting that policymakers are also watching whether higher borrowing costs and volatile energy prices expose strains in financial markets.

There was no rate decision on Saturday, and the presentation does not amount to a formal policy announcement. But by highlighting oil and gas prices with data extending into late June, Schnabel’s slides offered a fresh signal from inside the ECB that the energy shock has proved more persistent than expected — and that the inflation outlook has become more difficult since the staff baseline was set.