The European Central Bank just did something markets hadn’t fully priced in: it hiked rates again. On June 11, the ECB raised its main interest rates by 25 basis points, pushing the deposit facility rate to 2.25% effective June 17. The move comes as reviving inflation pressures, driven largely by an energy supply shock tied to geopolitical tensions in the Middle East, forced the central bank’s hand.
ECB Chief Economist Philip Lane framed the decision as necessary preemption. The bank, he said, will stay proactive and consider moving monetary policy now rather than waiting for inflation to become entrenched.
The inflation picture is getting worse, not better
The ECB’s revised inflation projections tell a story of sticky price pressures that aren’t going away quietly. Headline inflation is now projected at 3.0% for 2026, well above the ECB’s 2% target. The forecast eases to 2.3% for 2027 and finally hits the magic 2.0% number in 2028. Core inflation, which strips out volatile energy and food prices, is projected at 2.5% for both 2026 and 2027.
That core reading is the one that should grab your attention. When you remove the noisiest components and prices are still running hot, it means inflation has seeped into services and wages. These are the “second-round effects” Lane specifically flagged as a concern.
