ECB should remain vigilant on inflation despite easing Middle East tensions: Bundesbank chief

Bundesbank President Joachim Nagel urged the European Central Bank (ECB) to maintain caution on inflation despite recent easing of Middle East tensions, warning that the economic impact of the region’s energy crisis could linger for months. Speaking at the Frankfurt Euro Finance Summit on June 15, 2026, Nagel highlighted the severe consequences of the Strait of Hormuz blockade, which disrupted global energy trade and drove up crude oil prices, contributing to higher inflation. The blockade, which lasted months, severed a critical energy trade route, affecting the world economy. While Nagel acknowledged progress—such as a U.S.-Iran peace agreement and efforts to reopen the strait—he stressed that supply conditions would not normalize immediately. Oil production facilities in the region remain damaged, reserves are depleted, and energy prices could face further upward pressure as government support measures expire. Eurozone inflation rose above 3% in May, with core inflation persistently above the ECB’s 2% target, reinforcing concerns that energy shocks could broaden into lasting price pressures. The ECB responded by raising its deposit facility rate by 25 basis points to 2.25% on June 11, citing renewed inflationary pressures. Nagel emphasized that all options remain open for the ECB’s July policy meeting, including potential further rate hikes depending on incoming data. The Bundesbank projected Germany’s harmonized inflation at 2.9% for 2026 and 2.7% for 2027, with easing to 1.9% only in 2028. Nagel warned that geopolitical developments and renewed energy price spikes could further fuel inflation while stifling economic growth. The outlook remains uncertain, with the ECB prioritizing sustainable inflation control amid lingering risks from the Middle East conflict.