At the monetary policy meeting held on September 9 and 10, 2026, in Berlin, the European Central Bank (ECB) observed that eurozone financial markets were strongly influenced by developments in energy prices and geopolitical tensions, notably the conflict between the United States and Iran.
High energy prices, exacerbated by concerns over food inflation, have led to an increase in inflation expectations and interest rates. In Europe, prices for gas and refined products such as diesel have reached unprecedented levels since early 2023, partly due to limited refining capacity and low gas storage levels.
Markets quickly priced in a short-term inflation shock following the Middle East conflict, with a sharp rise in inflation expectations for December 2026. Expectations for June 2027 have also gradually increased, reflecting a view of persistent inflation linked to energy disruptions. For December 2027, expectations remain moderate but above 2%, consistent with ECB projections.
This reassessment has led markets to anticipate an ECB terminal rate exceeding 3% for the first time in this tightening cycle, with a total expected rate increase of 84 basis points by the end of 2027, compared to 64 basis points at the July 2026 meeting.
