The minutes of the ECB’s June meeting reinforced the Governing Council’s conviction that inflationary pressures had become too broad and persistent to justify waiting any longer before tightening policy. While all members unanimously backed a 25 basis point rate hike, the discussion showed policymakers had fundamentally reassessed the nature of the Middle East energy shock. Rather than treating it as a temporary supply disruption, members concluded that “the current situation no longer qualified as a case for looking through the shock” and that “the option value of waiting for further information had diminished considerably.”
The Governing Council argued that inflation had spread well beyond energy prices. Members noted “increasingly visible and broad-based indirect effects on non-energy inflation,” while warning that second-round effects were becoming increasingly likely the longer the energy shock persisted. Core inflation was now projected to remain above the ECB’s 2% target throughout the forecast horizon. Significantly, policymakers concluded that even under a milder scenario in which the Middle East conflict eased and energy prices were lower, “a significant portion of the inflationary damage… would already have worked its way into the broader economy.” Supply chain disruptions, higher production costs and firms’ pricing decisions would not simply reverse alongside lower oil prices, making the June rate increase appropriate across all scenarios considered.
Despite the hawkish assessment of inflation, the minutes reaffirmed the ECB’s commitment to a data-dependent and meeting-by-meeting approach. Members stressed that communication should “refrain from giving any guidance regarding the future interest rate path,” arguing it should remain neutral rather than implying either a sequence of further hikes or a one-off move. At the same time, the Governing Council reiterated its determination to return inflation sustainably to 2%, emphasizing that policy would remain agile and flexible as it assessed how higher energy costs continue feeding through wages, inflation expectations and broader price-setting across the euro area.
