Pressure on the ECB is easing. Inflation and oil are reversing
The June drop in inflation reduces pressure on the ECB. After the May data, the rate hike was still defensible because inflation was clearly above target, energy was double‑digit, and price pressure was also visible in services. The decision was mainly to show that the central bank responds to rising inflation and does not allow higher inflation expectations to become entrenched.
Since then, the oil market situation has changed significantly. Brent prices have fallen noticeably below $96.9 per barrel, the level the ECB assumed in its June 2026 projections. This means the supply shock that drove inflation is fading faster.
In such conditions it is hard to find arguments for further rate hikes. The euro area remains weak, demand pressure is limited, and higher rates do not lower oil prices, only further burden the economy.
Lower energy prices should gradually reduce inflation and bring it closer to the ECB target. In the baseline scenario we assume a pause in July and wait for further data, probably until the September projections.” – analysts at the investment platform Port commented.