By Don Nico Forbes and Ed Frankl
The European Central Bank said it was unable to overlook the energy shock at its meeting in June, as higher energy prices were expected to push inflation above its 2% target over the medium term.
The ECB's governing council last month made a unanimous decision to raise its key interest rate to 2.25%, becoming the first major central bank to hike on the back of elevated energy prices due to the war in Iran.
"It was now clear that the current situation no longer qualified as a case for looking through the shock," the ECB said in its account of its June meeting.
"The longer energy prices stayed high, the more likely they were to drive up broader inflation through indirect and second-round effects. Such dynamics would raise the risk of the energy shock becoming embedded in underlying inflation and in medium and longer-term inflation expectations."
