Higher Energy Prices Driving Inflation in the Euro Area
Published on
02/09/2026 – 7:00 GMT+2
Higher energy prices are the primary drivers of inflation in the euro area, as reported by ECB economists Kristina Barauskaitė Griškevičienė and Claus Brand. Their findings, presented in a recent paper, emphasize the significant impact of energy supply shocks, particularly in light of the ongoing conflict in the Middle East and the closure of the Strait of Hormuz.
According to the economists, “This time the energy supply shock dominates, while demand and public policy stimulus have minor roles.” They stress that these distinctions are crucial for understanding the varying responses of monetary policy compared to previous episodes.
Between January and May 2026, adverse energy supply factors were responsible for approximately 90% of the rise in energy inflation. During this span, monetary and fiscal policies have exerted only limited downward pressure on energy prices.
Following the outbreak of hostilities in the Middle East in late February, the ECB delayed its initial interest rate hike. The first increase occurred on June 11, raising the deposit rate from 2% to 2.25%—marking the first rise in three years in an attempt to curb inflation.
Despite optimistic forecasts predicting a return to the 2% inflation target by 2027, recent data shows inflation rose to 3.3% in August, prompting expectations for another interest rate increase to 2.50% at the ECB meeting on September 10.
The ECB has described its current monetary response as more “gradual” compared to the forceful and persistent rate hikes during the 2021-22 inflation surge, which was driven by both supply and demand-side factors.
While energy remains a key factor in the current situation, it is crucial to recognize past influences such as global supply chain disruptions and a rebound in post-pandemic demand, exacerbated by accommodative fiscal and monetary policies.
For further reading and detailed analysis, you may refer to the original paper by the ECB economists.
