European Central Bank President Christine Lagarde has signaled that a resurgence in oil prices could compel the central bank to raise interest rates at its September meeting, reversing the easing cycle that had been underway.
The warning marks a sharp pivot from the ECB's recent stance, which had been increasingly dovish as inflation cooled following a ceasefire between the US and Iran that had previously driven energy costs down.
Lagarde’s comments underscore the vulnerability of the eurozone’s monetary policy to external supply shocks.
Just six weeks ago, the ECB appeared to be gaining the upper hand in its fight against inflation, with price pressures easing faster than anticipated.
However, the recent spike in oil prices has reignited concerns about second-round inflation effects, forcing policymakers to reconsider their trajectory.
The potential for a rate hike in September introduces significant uncertainty for financial markets, which had been pricing in further easing or a pause in the current cycle.