05.03.202612:59:01UTC+00ECB Minutes Show Undershoot Worries Before Iran War

The European Central Bank said that, prior to the recent surge in energy prices linked to the Middle East conflict, policymakers had expected inflation to fall further below their 2% target. Minutes from the February 4–5 meeting show that officials were comfortable leaving interest rates unchanged and judged the overall outlook to be stable, supported in part by the euro’s strength against the dollar. At that point, inflation was forecast to dip below target in the near term, though policymakers cautioned that highly volatile energy prices could quickly change the picture.

That risk has now become more pronounced after oil prices jumped more than 20% this week, a move that could push inflation higher in the short term given Europe’s heavy dependence on imported energy. Financial markets are now assigning a small probability to an interest rate increase by December. For the moment, the ECB maintains that its current policy stance remains appropriate, but it has reiterated its readiness to act if inflation risks intensify.