- ECB’s Vujcic: Energy prices still very close to baseline scenario
The ECB baseline scenario assumed that while energy prices would spike in the short term, they would eventually stabilize. The ECB expected oil prices to peak around $90 per barrel in Q2 of 2026 before gradually declining. The adverse scenario saw prices reaching $119 per barrel, while the worst-case scenario projected oil to spike to $145 per barrel and remain persistently high.
Despite the upward revision in inflation, the ECB has maintained a patient approach to avoid overreacting to the supply-side shock that is also expected to dampen economic growth.
The ECB has explicitly stated it is not pre-committing to a specific rate path. Their response to the current baseline is characterized by neutrality and data-dependency. The central bank is willing to look through temporary energy spikes unless they begin to drive up wages and inflation expectations.
If the baseline holds, the ECB will just keep rates on hold for the foreseeable future. If the adverse or severe scenarios materialize and core inflation starts to increase along with other data like wages and inflation expectations, the ECB has signalled it is well-positioned to act and increase interest rates to keep inflation around their 2% target.
