ECB Holds Rates But Warns Iran War Is Pushing Inflation Dangerously Higher

Euro area inflation stood at just 1.9% in February before the Iran war sent energy prices surging, and the European Central Bank's April 29-30 meeting accounts show how rapidly conditions have changed. The ECB held its key rates unchanged, but inflation jumped to 3.0% in April from 2.6% in March, driven entirely by energy prices, which surged 10.9%, up from 5.1% in March and -3.1% in February. The oil price futures curve sits roughly 20% above March baseline projections, and inflation fixings for 2026 are trading at up to 3.6%. Markets are now pricing in three 25-basis-point rate hikes by year-end. The euro area economy contracted in April, with the composite PMI falling to 48.6 from 50.7 in March, while Q1 GDP growth came in at a weak 0.1%. The cost of issuing market debt rose to 3.9% in March from 3.5% in February. Several members said the hold was a close call and would not have opposed an immediate rate hike.