The European Central Bank is widely expected to increase its deposit rate to 2.25% at its June 11 meeting, and most economists polled see another rise later in the year - likely in September - as policymakers weigh energy-driven inflation against a weakening economy.
Inflation across the euro zone stood at 3.2% in May, above the ECB’s 3.0% target. Core inflation, which strips out energy and food, accelerated to 2.5% - a faster pace than economists had anticipated - indicating that the impact of the Iran war is filtering through to prices.
At the same time, recent purchasing managers' index surveys and official data point to a slowing economy. The conflict in and around the Strait of Hormuz has now lasted beyond three months with no clear resolution, and the passage - a crucial corridor for global energy shipments - remains largely clogged, adding to uncertainty for energy markets and inflation dynamics.
Policymakers have increasingly signalled that a rate increase in June is certain, and most participants in the poll judged that even a negotiated peace agreement would not necessarily stop the ECB from moving. But the same respondents noted constraints on the scale of further tightening: a softer labour market, a weaker growth outlook and already-higher rates compared with the 2022 inflation surge argue against an aggressive monetary policy campaign.
In a poll conducted from May 29 to June 3, more than 90% of economists - 74 out of 80 respondents - expected the ECB to raise rates by 25 basis points next week to 2.25%. That proportion has risen from around 85% in last month’s poll and was just over half in April.
"The ECB doesn’t want to make the same mistake of underestimating inflation again. The cost of holding rates in terms of credibility as an inflation fighter is probably higher at this stage than the risk of hiking," said Bas van Geffen, senior macro strategist at Rabobank.
When asked about the likely size of the tightening cycle, a majority took a cautious view. More than 60% of respondents - 49 of 80 - expected one additional rate increase this year, most likely in September, which aligns broadly with current market pricing. Last month, there had been no clear consensus on where rates would end up by the close of 2026: nearly one-third of economists saw one or no additional hikes, while only a small number expected three or more moves.
"I think for now it’s just one or two hikes. But of course if the situation lasts longer then the ECB may have to go further," one respondent said.
Dean Turner, chief euro zone and UK economist at UBS Global Wealth Management, framed the likely moves as precautionary. "It probably makes sense to move interest rates from the bottom to the top of the neutral range just to ward off any threats there could be more inflation pressure building in the pipeline," he said. "I’m not viewing it as a policy move to deliberately slow the economy because everyone’s panicking about second-round effects. It’s more of a risk management exercise."
The path for inflation is a crucial determinant of future policy. With Brent crude futures about 40% above pre-war levels, the poll medians showed inflation averaging 3.3% per quarter for the remainder of this year and 2.9% in 2026 - marking a fourth consecutive monthly rise in inflation forecasts.
Economic growth projections were downgraded again: the median forecast now sees the economy expanding 0.7% in 2026, the third downgrade since early March and the weakest outlook since 2023.
Risks flagged by economists include a heightened chance of stagflation - the combination of weak growth, rising unemployment and elevated inflation. Two-thirds of those surveyed rated the risk of stagflation as high. That assessment stands in contrast to ECB President Christine Lagarde’s remark in April that stagflation described the 1970s, not the current environment.
"We’ve got a stagnation scenario for the next few quarters. At the same time, energy prices will push up inflation across the euro zone. It does have the attributes of a stagflationary scenario," said van Geffen.
Sectors affected: The dynamics outlined by the poll are particularly relevant for energy markets, financials and bond markets, as well as inflation-sensitive sectors of the economy where higher energy costs feed through to consumer prices.
The combination of elevated energy-driven inflation and weakening activity presents a narrow policy path for the ECB: enough tightening to defend credibility on inflation while stopping short of moves that could materially worsen the growth and labour market outlook.