The ECB raised interest rates by 25 basis points again, with Christine Lagarde highlighting the greater resilience of the eurozone economy, reflected in the upward revision of growth to 0.9% in 2026 and 1.4% in 2027. However, inflationary risks continue to increase, with inflation reaching 3.3% in August, of which about 40% results directly from the energy component.
The refined products market is becoming increasingly tight, marked by refining capacity scarcity, reduced production and exports of refined fuels from Russia and the Middle East, and low stocks. This combination raised refining margins to historically high levels, especially for diesel, exacerbating the rise in fuel prices.
A second wave of the energy shock that began on February 28 already seems to be underway. The approach of winter will force stock replenishment, increasing demand for refined products in an already very tight market. If this replenishment further drives up refining margins and prices, this wave could extend and intensify its transmission to other prices, boosting inflation and penalizing growth, increasing the risk of stagflation.
Lagarde avoided committing to further rate hikes, reiterating that decisions will be made meeting by meeting and based on data. However, the energy shock could force the ECB to raise interest rates again, even in the face of a weak economy. In the eurozone, price stability is the ECB's primary objective, so inflation persistently above 2% could require a more restrictive monetary policy, even when such policy penalizes economic activity.
