The European Central Bank kept its three key interest rates unchanged at its 22–23 July meeting in Frankfurt, as inflation eased in June but energy prices remained volatile.
Headline inflation in the euro area fell to 2.8% in June from 3.2% in May, the ECB informed in a statement on Thursday.
Core inflation — which excludes energy and food — edged down to 2.4% from 2.6%.
The decision followed a rate rise in June, with policymakers arguing that uncertainty remained high and the full impact of the energy shock linked to the Middle East conflict had yet to feed through.
Oil prices were 6% lower than at the time of the June meeting, at about $89 a barrel, while European gas prices were up 16% over the same period.
The ECB added that oil and gas prices were still well above levels seen before the conflict began.
Unemployment stood at 6.2% in May, close to historical lows, while measures of hiring cooled — Indeed job postings were around 14% lower than a year earlier and LinkedIn’s hiring rate was about 17% lower.
Energy and food costs stayed in focus
Food prices were reported to be rising, with members noting strong increases since June in items including coffee and cocoa, and cocoa prices rising particularly sharply, the ECB account said.
The ECB also reported concerns about weather risks, with forecasts expecting El Niño conditions over the coming months and heatwaves in Europe putting pressure on food production and prices.
Markets were pricing in further ECB tightening, with a rate rise in September 2026 “almost fully priced” and an additional hike fully priced in by February 2027, based on overnight index swap pricing cited in the account.
Overnight index swaps are derivatives that reflect expectations for future interest rates.
The ECB said it would continue to take decisions meeting by meeting and base them on incoming data, without pre-committing to a rate path.
