ECB Research Says Energy Shock, Not Demand, Driving Euro Zone Inflation
ECB research attributes the current euro zone inflation spike almost entirely to energy supply shocks, validating its gradual rate hike approach.
Fresh analysis from European Central Bank (ECB) economists indicates that the recent surge in euro zone inflation is almost exclusively the result of higher energy prices, a finding that lends support to the bank's decision to begin raising interest rates in June.
The research, published in an ECB blog post, compared the current inflationary episode with the one that followed the 2022 invasion of Ukraine. The authors used a range of variables, including pandemic-era demand and supply imbalances, energy supply shocks, and fiscal and monetary policy measures, to break down the drivers of price growth.
According to the estimates, the rise in headline inflation up to the end of May 2026 has been driven "almost entirely by adverse energy supply shocks," wrote economists Kristina Barauskaitė Griškevičienė and Claus Brand. This contrasts with the 2021-22 period, when inflation was initially fueled by monetary stimulus and later by fiscal measures.
The blog post argues that this difference justifies the ECB's "more measured policy response" so far. It states that the actions taken to date are consistent with the bank's medium-term policy orientation and with financial market expectations.
The ECB raised rates in June for the first time in nearly three years and is expected to do so again next week, as continued disruption in the Strait of Hormuz keeps energy prices high for the import-dependent bloc. Most economists anticipate the conflict in Iran to conclude during the summer.