Most economists surveyed in a recent poll expect the European Central Bank to raise its deposit rate in June and to deliver at least one further increase later this year as it confronts mounting inflationary pressure tied to an energy price shock from the Middle East conflict.
Consumer inflation sits more than one percentage point above the ECB's 2% target, and the ongoing war - now in its third month - has pushed the price of oil back above $100 per barrel. With oil futures still more than 50% above pre-war levels, the prospect that higher energy costs could seep into broader price setting has prompted economists to predict additional tightening even after the central bank paused at its last meeting.
Since the decision to hold rates last month, ECB officials have indicated that rate increases are likely, noting the economy appears closer to the bank's "adverse scenario" than to its baseline outlook. Poll respondents were divided over the scale and timing of further moves, but a clear majority see at least one near-term hike.
In the May 8-13 poll, around 85% of economists - 59 of 70 respondents - forecast a 25 basis point increase to a 2.25% deposit rate in June, up from just over half who expected such a move before the April meeting. That outcome is viewed as probable by most respondents, although many said markets were pricing in more aggressive action than they expect to occur.
Martin Wolburg, a senior economist at Generali Investments, cautioned that while the ECB wants to signal it is prepared to act if needed, energy supply shortages are a central risk: "The ECB wants to signal it is ready to hike in any case if warranted...But the elephant in the room is shortages in critical energy supply, which will have strong negative effects on activities and in the end warrant a more cautious policy approach," he said. Wolburg warned markets may be overstating the extent of tightening to come, adding: "Markets are exaggerating in expecting three rate hikes. We think the ECB will be much more cautious."
There was no firm consensus on how many additional increases will follow. Nearly half of the economists surveyed - 34 of 70 - anticipated another rate rise later this year, with most of those expecting it to arrive in the next quarter. Roughly 47% of respondents foresaw only one more hike in 2024 or none at all, and only a small number predicted three or more increases.
Jens Eisenschmidt, chief Europe economist at Morgan Stanley, framed the central bank's dilemma as one between guarding inflation expectations and avoiding undue harm to a fragile economy: "It (the ECB) is now faced with a difficult policy decision: how much insurance to take out to prevent the de-anchoring of inflation expectations," he said. "At least two rate hikes seem likely."
The poll's inflation projections reflected the elevated oil price environment. Economists collectively expected inflation to average 3.2% for the remainder of this year and 2.8% through 2026 - a slight upward revision from the prior month but broadly consistent with the ECB's own projections. At the same time, core inflation expectations remained steady around current levels, suggesting limited evidence so far of broader second-round effects flowing through wages and services prices.
Economic momentum was expected to remain weak in the near term. Quarterly growth was forecast at just 0.1% through the first half of the year before a modest pickup, leaving the projected expansion for 2026 at 0.8% - a downward revision for a second consecutive update since early March.
Many economists continue to assume the war will be brief and that the energy shock - described in public commentary as the largest of its kind by some institutions - will fade relatively quickly, limiting long-term inflationary fallout. But analysts warned that if supply chain disruptions and frictions become more pronounced, the risk that the current bout of inflation proves less transitory would rise.
"The chances we are wrong again on inflation being transitory will clearly increase if we get to real supply chain disruptions and frictions. I think we’re getting close, with now 10 weeks into the war," said Carsten Brzeski, global head of macro at ING.
This outlook presents central bankers with a narrow path: tightening policy enough to prevent inflation expectations from drifting upward, while avoiding steps that could deepen economic weakness amid fragile growth and weak sentiment.