ECB Starts New Rate Hike Cycle as Core Inflation Spreads Beyond Energy

Published by James Harris on June 12, 2026June 12, 2026

The European Central Bank raised its deposit rate by 25 basis points to 2.25% on Thursday, becoming the first major central bank to tighten policy in direct response to the energy shock from the US-Israeli war against Iran. The closure of the Strait of Hormuz, which previously handled roughly 20% of global oil and gas shipments, has pushed eurozone inflation to 3.2% annually as of May, with energy prices up 10.9% year-on-year.

The more telling detail is not the headline rate but the broadening of price pressure underneath it. Core inflation, excluding energy and food, rose to 2.5% in May from 2.2% in April, which is what pushed the Governing Council to act rather than wait. The ECB’s last tightening cycle ran from June 2022 to September 2023, taking the deposit rate from negative 0.5% to 4.0% before a series of cuts brought it back to 2% by September 2025. Thursday’s move does not complete a round trip. It opens a new one, with ECB staff now projecting headline inflation won’t return to the 2% target until 2028. For crypto and other high-beta risk assets, which have tracked macro liquidity conditions closely since 2020, a European tightening cycle layered on top of an already cautious Fed is the kind of backdrop that suppresses risk appetite at the margin, regardless of any asset-specific narrative.

Christine Lagarde refused to signal the next move, which in central bank language is itself a signal that more is possible.

Markets are pricing roughly even odds of another 25 basis-point hike by September, with Deutsche Bank’s Mark Wall calling it one more move and done, while ING’s Carsten Brzeski argues broadening inflation pressures make further action more likely in July or September. The Fed and Bank of England both meet next week without having moved in response to the Iran shock, partly because the eurozone’s structural dependence on imported energy left Frankfurt exposed first. For euro-area borrowers on tracker mortgages, the transmission is already direct: a 150,000 euro loan with more than ten years remaining adds just over 200 euros annually in repayments, according to Bonkers.ie. The growth forecasts cut alongside the hike, with 2026 revised down to 0.8% from 0.9%, confirm the ECB is hiking into a slowdown driven by a supply shock rather than excess demand, the exact scenario where tightening carries the most policy risk.

ECB staff expect inflation to average 3.0% in 2026, up from their March forecast of 2.6%, which means the institution is now committed to at least one more rate decision under conditions that are unlikely to have materially improved by July.