Why the ECB Isn't Done Fighting Inflation Even After the US-Iran Deal

When the US and Iran announced an interim deal to end their conflict and reopen the Strait of Hormuz in mid-June 2026, oil prices slid and stock markets rallied. For a moment, it looked like the worst of the energy crisis was over. But at the Reuters NEXT Europe conference just days later, European Central Bank Chief Economist Philip Lane delivered a blunt warning: the inflation unleashed by the war is still working its way through the economy and has yet to be fully felt .

Lane’s message was clear. The reopening of the strait is a necessary step toward normalizing global energy markets, but it alone is not sufficient to erase the inflation that has already been set in motion . Oil prices may have fallen roughly 20% from their wartime peaks, but they remain elevated above pre-crisis levels, and the pipeline of price pressures now working through supply chains means central banks cannot declare victory yet .

The ECB had already acted on that concern. On June 11, the Governing Council raised all three key interest rates by 25 basis points—its first rate increase since September 2023—and explicitly tied the decision to the energy shock from the Middle East conflict . The new rates took effect on June 17: the deposit rate rose to 2.25%, the main refinancing rate to 2.40%, and the marginal lending facility to 2.65% .

The ECB also released its updated Eurosystem staff projections, which showed a significant upward revision to the inflation outlook. Headline inflation is now expected to average 3.0% in 2026, up from the previous forecast of 2.6%, and 2.3% in 2027, up from 2.0%. Core inflation, which excludes volatile energy and food prices, was also revised substantially higher to 2.5% for both 2026 and 2027, compared with earlier estimates of 2.3% and 2.2% respectively .

This is the heart of Lane’s pipeline argument. The immediate shock of the Strait of Hormuz closure caused a rapid and massive drop in global oil supply, but the full inflationary impact takes time to materialize. Higher energy costs feed into food production, transportation, manufactured goods, and eventually services. As Lane put it in an earlier speech in Tokyo, "even if the initial energy shock begins to diminish, the secondary effects will linger for some time" .

The ECB’s Survey of Professional Forecasters for the second quarter of 2026 supports this view. Headline HICP inflation expectations were "markedly revised upwards" for 2026 and, to a lesser extent, 2027, while longer-term expectations remained anchored . That suggests forecasters see the energy spike as persistent enough to lift near-term inflation but not so entrenched as to permanently unanchor expectations. Core inflation expectations were also revised upward in the near term, reinforcing the idea that the pass-through to the broader economy is underway .

So what comes next for ECB policy? Lane and ECB President Christine Lagarde have both emphasized that the Governing Council will not follow a pre-set path but will decide meeting by meeting based on incoming data . However, the June decision statement noted that core inflation is expected to remain above 2% over the entire 2026–2028 forecast horizon—an outcome the ECB considers incompatible with just a single quarter-point hike .

Economist polls show strong consensus for further tightening. A Reuters survey of 80 economists found that over 90% predicted the June hike, and a follow-up move in September is widely considered the base case . Analysts at Barclays and J.P. Morgan had earlier forecast up to three rate increases of 25 basis points each in 2026 . Desjardins economists, noting the material upward revision to core inflation forecasts, also expect at least one more hike this year .

While the ECB leads the charge, other central banks are navigating the same energy-driven inflation landscape. The Bank of England’s Monetary Policy Committee meets on June 18 and is near-certain to hold its base rate at 3.75%, where it has been since December 2025 . At its April meeting, the MPC voted 8–1 to keep rates on hold, with one member already favoring an increase to 4% . Although UK CPI inflation fell to 2.8% in April, the Bank expects it to rise above 3.5% later in the year, driven largely by energy price increases . Markets are now pricing in around 50 basis points of further tightening over the next 12 months rather than the rate cuts that were expected before the Middle East conflict began .

Evidence for the Swiss National Bank’s specific June 2026 decision is not available in the current source set. Based on the broader pattern, the SNB likely faces upward pressure from imported energy inflation, but a definitive assessment requires more recent data.

The critical takeaway from Lane’s Reuters appearance is that the gap between a geopolitical resolution and economic normalization is wide. Analysts caution that it could take weeks or months for shipping through the Strait of Hormuz to fully resume, and the oil that was already in transit before the war will take even longer to reach end markets . That lag means inflation data in the coming months will continue to reflect the energy shock that has already happened, even if headline oil prices ease further.

For households and businesses across Europe, this translates to a longer stretch of elevated prices. For the ECB, it means the fight against inflation is far from finished—and further rate hikes remain firmly on the table.