The ECB raised its deposit rate to 2.5% as energy inflation hit 14.3%, and the euro area's 2026 deficit widens to 3.6% of GDP.

The ECB's hike is a supply-side response: energy inflation at 14.3% and oil at $97/barrel are pushing the central bank to tighten even as staff project growth of only 0.9%, so the euro area's 2026 deficit widening to 3.6% of GDP from 3% of GDP is the fiscal consequence of a monetary policy that cannot lower imported fuel costs. The same energy shock runs through the refinery complex, where capacity cuts and a shortfall in fuels have kept diesel, gasoline and jet cracks above their 2022 levels, and through the WAEMU, where the BCEAO attributes its projected inflation acceleration to Middle East tensions lifting petroleum and freight costs — one cause, two peripheries. The Riksbank's Thedéen and the ECB are reading the same commodity price data in opposite directions: Thedéen wants a hike as early as November on high energy and commodity prices, while the ECB's own account notes that the share of euro-area term premia variation explained by US shocks has fallen to roughly a fifth, keeping sovereign spreads over OIS broadly stable — a decoupling that gives the ECB room the Riksbank does not need.