ECB's Dolenc: We have not seen clear evidence of second-round inflation effects

The European Central Bank (ECB) has maintained a cautious stance on the risk of second-round inflation effects, with ECB President Christine Lagarde stating that no clear evidence of developments. This assessment follows the ECB’s decision to raise key interest rates by 25 basis points in early June 2026, as part of its ongoing efforts to stabilise inflation at its 2% target. While headline inflation in the euro area remains elevated—projected to average 3.0% in 2026—Lagarde noted that the current inflation shock, though significant, has not yet led to a de-anchoring of longer-term expectations.

The ECB’s updated staff projections indicate that inflation is expected to decline gradually, averaging 2.3% in 2027 and 2.0% in 2028. However, the outlook remains uncertain, with upside risks for inflation and downside risks for economic growth. The ECB continues to monitor the evolving situation closely, particularly the potential for indirect effects from the ongoing war in the Middle East to influence wage growth and broader inflation dynamics. For now, the Governing Council is taking a measured, data-dependent approach to monetary policy, avoiding pre-commitment to a specific rate path.