The European Central Bank is entering its next policy phase in a more complicated position than the headline inflation number alone might suggest.
On paper, the picture looks relatively stable: euro area annual inflation rose to 1.9% in February 2026 from 1.7% in January, leaving the bloc close to the ECB’s 2% medium-term target. Yet the composition of inflation, the renewed jump in energy prices and the continued weakness of growth across much of the eurozone mean policymakers are not treating the latest figures as evidence that the inflation problem has fully disappeared.
ECB officials have indicated that interest rates are unlikely to change at the next meeting. That position was underlined this week by Governing Council member José Luis Escrivá, who said a move at the next meeting was improbable, while Klaas Knot’s colleague Olaf Sleijpen also argued that the recent oil surge had not yet fundamentally altered the ECB’s policy position. The Governing Council left its key rates unchanged on 5 February, with the deposit facility at 2.00%, the main refinancing rate at 2.15% and the marginal lending rate at 2.40%, and it has continued to stress a meeting-by-meeting, data-dependent approach.
That caution reflects the fact that the recent inflation increase is not solely about oil. Eurostat’s February flash estimate showed services inflation rising to 3.4% from 3.2%, while inflation excluding energy, food, alcohol and tobacco increased to 2.4%. Food, alcohol and tobacco inflation remained at 2.6%, and energy prices were still falling on an annual basis, down 3.2%, although less sharply than the 4.0% decline recorded in January. In other words, even before the latest geopolitical shock, domestic price pressures in parts of the eurozone economy had not fully faded.
The new concern is that the Middle East war may interrupt that disinflation trend. The conflict has already driven sharp moves in oil and gas markets, while analysts estimate that even a modest further increase in oil prices could add around 0.2 percentage points to euro area inflation. Separate reporting has pointed to disruption in shipping and liquefied natural gas supply linked to the conflict, with Europe exposed through higher global benchmark prices even if its direct reliance on the region is lower than that of some Asian economies. ECB officials have so far argued that temporary energy shocks should not automatically trigger tighter policy, but they are plainly watching for signs that higher fuel costs begin feeding into broader prices, wages and inflation expectations.
This is what makes the current debate particularly difficult for Frankfurt. The ECB’s own December 2025 staff projections expected headline inflation to average 1.9% in 2026 and 1.8% in 2027 before returning to 2.0% in 2028. Those projections also assumed that core inflation would continue to ease as wage pressures and services inflation moderated. February’s inflation data do not overturn that baseline, but they do suggest that the path back to sustained price stability may be less smooth than policymakers hoped only a few weeks ago. Consumer inflation expectations have also edged higher: the ECB’s latest Consumer Expectations Survey showed three-year inflation expectations at 2.6% and five-year expectations at 2.4% in December.
At the same time, the eurozone economy does not look strong enough to absorb a fresh external shock easily. Eurostat said this week that GDP and employment both rose by 0.2% in the euro area in the fourth quarter of 2025, while an earlier release put quarterly GDP growth at 0.3% and annual growth for 2025 at between 1.4% and 1.5%, depending on the estimate. That is growth, but not momentum. It remains modest by historical standards and uneven across the bloc, with Germany in particular still facing weak domestic demand and structural economic pressures. A prolonged rise in energy costs would therefore risk producing the least comfortable combination for policymakers: slower activity alongside renewed inflation pressure.
For now, the ECB appears likely to wait rather than react. That is partly because the Governing Council views its inflation target over the medium term, not as a trigger for immediate action every time commodity markets move. It is also because the current shock is still developing, and policymakers do not yet know whether the rise in oil and gas prices will prove temporary or persistent. But the issue is now firmly back on the agenda. The eurozone entered 2026 with inflation close to target and rates on hold. It is now facing a renewed test of whether that stability can survive a geopolitical energy shock without tipping the bloc back towards either stagflation or another round of monetary tightening.
