Meeting of 29-30 April 2026

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Amid elevated volatility, markets continued to expect the oil price shock to be persistent. Although upside risks had moderated, oil was priced significantly higher, over an extended period of time, than it had been before the start of the war in the Middle East. As a result, markets continued to price in a notable and sustained inflationary impact. Inflation fixings had increased further for both 2026 and 2027. This suggested that investors anticipated some indirect or second-round effects extending beyond the first year of the conflict, before inflation was expected to return to the target of 2% in 2028. At the same time, markets continued to expect the economy to be relatively resilient. Prices of risk assets, including equities, as well as sovereign and corporate bond spreads, and the exchange rate of the euro had moved back towards the levels observed prior to the conflict. Earnings expectations had been revised up since the beginning of the war, which was consistent with the view that the impact on economic growth would be short-lived. At the same time, there had been negative surprises in macroeconomic data for the euro area. Therefore, buoyant risk asset markets, which were hovering near all-time highs, might indicate some investor complacency given the size and persistence of the energy price shock. With inflation still perceived as the dominant risk, investors were pricing in cumulative policy rate hikes by the ECB of 73 basis points in 2026. Overall, financial conditions had eased since the Governing Council’s previous monetary policy meeting, driven mainly by strong risk asset markets, but they remained somewhat tighter than before the war. Energy prices were unchanged from the levels prevailing at the time of the Governing Council’s previous monetary policy meeting, but remained subject to heightened volatility. Oil prices had been strongly affected by the changing probabilities of a potential reopening of the Strait of Hormuz. The Brent crude oil futures curve had retreated from the peak level reached in late March 2026, but still stood at about the level observed at the time of the Governing Council’s previous monetary policy meeting. Moreover, the curve remained materially above the pre-war level over the next two years, suggesting that market participants assessed the energy price shock to be not only large but also highly persistent. Energy price developments had been the dominant driver of movements across euro area financial markets. Expectations of persistently higher energy prices had been reflected in inflation compensation, which had increased sharply in response to the energy shock, and higher short and longer-term interest rates. By contrast, riskier market segments had shown less persistent reactions. A key factor underlying the divergence between the responses of interest rate markets and segments for riskier asset classes was the assessment by investors of the relative impact of the energy shock on inflation and growth. Inflation expectations reported by Consensus Economics had shifted higher for the euro area for both 2026 and 2027, and for the United States they had shifted higher for 2026. By contrast, there had been a more modest adjustment in growth expectations. Both euro area and US growth projections had edged down, while not pointing to a pronounced slowdown. However, recent incoming data had been more favourable in the United States than in the euro area, which was consistent with the different impact of the terms-of-trade shock across the two economies. Regarding the market’s view of the inflation outlook for the euro area, at the time of the Governing Council’s previous monetary policy meeting, inflation fixings for 2026 and 2027 had already shifted up sharply compared with before the start of the war in the Middle East. The latest fixings had edged up further for 2026, trading at levels of up to 3.6%. For 2027, inflation fixings were even more clearly above their March 2026 levels. This suggested that investors were expecting more persistent inflationary pressures, reflecting some indirect or second-round effects. The balance of risks to inflation over the next two years and also over the next five years remained clearly tilted to the upside, while longer-term risks had started to point more to the upside, but inflation expectations continued to be well anchored. The shifts in inflation compensation had dominated developments in euro area risk-free rates across all maturities. Since the start of the war in the Middle East, euro area overnight index swap rates had moved up significantly, with the reassessment of inflation prospects pushing rates higher across the curve and leading to a flattening of the nominal yield curve. By contrast, the real overnight index swap curve had steepened, with real rates declining markedly at the front end of the curve relative to pre-war levels and contributing to a loosening of financial conditions. After the previous monetary policy meeting on 18-19 March, markets had priced in a further tightening of monetary policy. Rate market investors were now fully pricing in one 25 basis point policy rate hike by June 2026, two by September and a 92% probability of a third by December. At the time of the previous meeting, participants in the Survey of Monetary Analysts had expected the ECB to look through the energy supply shock, but their responses had now become more aligned with market pricing and the median expectation was for two hikes in 2026. In the United States, market-based measures of policy rate expectations had remained broadly unchanged since the Governing Council’s previous monetary policy meeting. The EUR/USD exchange rate had rebounded to close to pre-war levels since the Governing Council’s previous monetary policy meeting. The euro had initially depreciated markedly, both in bilateral and nominal effective terms, as the terms-of-trade shock had been expected to weigh on the currencies of net energy importers. However, it had almost fully recovered its losses over recent weeks. Improved global risk sentiment and expectations of tighter ECB monetary policy relative to US policy had contributed to the euro’s recovery. Investor optimism regarding the impact on economic growth was most visible in equity markets, which appeared to be largely looking through the energy price shock. The benchmark stock index for the euro area had initially corrected significantly in response to the war, but since the Governing Council’s previous monetary policy meeting it had partly recovered its losses. In the United States, benchmark stock indices had even surpassed pre-war levels and risen towards new all-time highs, supported by renewed optimism about the potential impact of artificial intelligence. Model-based analysis showed that the dominant driver of the initial decline in euro area equity prices had been the rise in risk-free rates. Since the Governing Council’s meeting on 18-19 March, higher longer-term earnings expectations had pushed up euro area equity markets, while higher risk premia had pulled in the opposite direction. Looking at the entire period since the start of the war, earnings expectations had been revised up overall, indicating that analysts did not expect the war to have a lasting impact on corporate profits. In line with improved risk sentiment, euro area sovereign bond spreads had also narrowed from the peaks recorded in the second half of March. The dispersion of euro area sovereign spreads had remained contained over the entire period since the start of the war. This appeared to reflect not only market perceptions that the real economic fallout from the energy shock would be limited, but also expectations of a prudent fiscal response, as measures taken to shield households and firms from higher energy prices remained limited so far. Another factor supporting euro area government bond markets had been increased inflows of global funds into European sovereign bonds, which pointed to continued confidence in European sovereign debt. In corporate bond markets, pricing had also remained benign. Spreads of high-yield euro area corporate bonds had temporarily widened at the onset of the war, but the increase had remained contained. Overall, financial conditions for the euro area had initially tightened in response to the war, but had eased since the Governing Council’s last monetary policy meeting on the back of buoyant risk assets. Ms Schnabel concluded by summarising how the rise of tokenised financial markets might affect market functioning and monetary policy implementation. Tokenised finance had expanded rapidly over recent years and was concentrated in three segments: stablecoins, decentralised finance and tokenised traditional assets, with stablecoins dominating. Broader adoption of tokenised finance would take time, as it was being held back by regulatory and structural barriers. From a central bank perspective, the fragmentation of liquidity remained a key concern in relation to tokenised financial markets. On the positive side, tokenisation was expected to give rise to significant efficiency gains, for example by reducing the cost of bond issuance and post-trade processing and by mitigating settlement risk through near-instantaneous settlement of transactions. Given the fast evolution of tokenisation, it was important to foster these developments through the Eurosystem’s own innovation activities, especially in the context of the ongoing Pontes and Appia projects. The global environment and economic and monetary developments in the euro area Mr Lane then went through the latest economic, monetary and financial developments in the global economy and the euro area. The incoming information since the March meeting had been broadly consistent with the Governing Council’s previous assessment of the inflation outlook and the risks surrounding it. The war in the Middle East had led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment. The implications of the war for medium-term inflation and economic activity would depend on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects. Starting with inflation developments in the euro area, headline inflation, as measured by the Harmonised Index of Consumer Prices (HICP), had increased to 2.6% in March, from 1.9% in February. The rise had been entirely driven by surging energy prices caused by the war in the Middle East. Energy price inflation had jumped to 5.1% in March, from -3.1% in February, while non-energy inflation had eased further, to 2.3%, from 2.4% in February. Based on the country data available so far, staff expected Eurostat’s flash data release for HICP inflation in April – which was to be published on 30 April – to lie in the range of 3.0% to 3.1%, broadly in line with the March 2026 projections. The projected acceleration in headline inflation from February reflected an expected sharp increase in energy inflation. Indicators of underlying inflation had changed little over recent months. The ECB’s wage tracker and surveys on wage expectations continued to indicate easing labour costs in the course of 2026. At the same time, surveys indicated an increase in other labour cost components. Measures of near-term inflation compensation stood at or slightly above 3% for the period until the end of the first quarter of 2027. Markets were pricing in a sharp drop in inflation in the second quarter of 2027 and convergence to target in 2028. At longer horizons, inflation was expected to stabilise at the target. One-year forward inflation compensation two years ahead stood at 2.18% and five-year forward inflation compensation five years ahead stood at 2.15%, which, once corrected for risk premia, was consistent with inflation at target. In the latest rounds of the Survey of Professional Forecasters and the Survey of Monetary Analysts, the median responses to both surveys showed inflation expectations had been revised up for the near term, but remained at target over the medium term. While median consumer expectations for inflation one year ahead and three years ahead had moved up markedly, median expectations for inflation five years ahead had been revised up only slightly, from 2.3% to 2.4%, returning to the level seen at the end of 2025. The latest results of the Survey on the Access to Finance of Enterprises indicated that corporate inflation expectations had been revised up mainly at short horizons, while three‑year ahead and five‑year ahead median expectations had hardly changed. In summary, taken together, the incoming information suggested that longer-term inflation expectations were well anchored at the target. At the same time, market-based, expert-based and survey-based measures of the balance of risk to inflation all pointed to upside risks, especially in the near term. Global economic activity had remained relatively resilient, but the war in the Middle East was weighing on energy markets, confidence and near-term growth prospects. While remaining in expansionary territory, the global composite Purchasing Managers’ Index (PMI) had declined from 53.5 in February to 50.9 in March. Rising energy prices were beginning to dampen consumer spending, which was likely to weigh increasingly on activity over the coming quarters. Global trade had so far been only moderately affected, while broader shipping disruptions had remained contained and freight costs were generally stable. Survey indicators nevertheless pointed to some weakening of trade in the period ahead. Turning to commodity prices, movements in energy prices had been driven by developments in the war in the Middle East. The latest oil price futures curve remained elevated and for 2026 it was around 20% above the baseline assumptions for the March 2026 ECB staff projections. Looking ahead, current prices for 2027 were close to the March projections baseline, which was consistent with markets expecting the crisis to be resolved by next year. The latest forward curves for European natural gas prices were well below the baseline assumptions for the March projections. In terms of the profile, futures implied that gas prices would move sideways over the second half of 2026 and then fall quite sharply in 2027 and 2028. The futures curve of the synthetic energy commodity price index (SECPI), which was a weighted average of gas and oil prices, was only slightly above the assumptions for the March baseline projections. Within the SECPI, the upward shift in the oil price futures curve since March had been largely counterbalanced by the downward shift in the gas price futures curve. The euro had appreciated since the previous Governing Council meeting, increasing by about 1.5% in bilateral terms against the US dollar and by 0.7% in nominal effective terms. Its depreciation at the start of the war in the Middle East had subsequently reversed and it was currently trading close to the levels seen at the start of the year. The euro area economy had been showing some momentum when the current turbulence started, but early indicators suggested that the conflict in the Middle East was starting to weigh on activity, against the backdrop of a highly uncertain outlook. In the March staff projections, real GDP had been expected to expand by 0.3% and employment by 0.1% in the first quarter of 2026. Eurostat’s flash estimate for these figures was due to be released on 30 April. However, the economic outlook was highly uncertain and would depend on how long the war in the Middle East lasted and how strongly it affected energy and other commodity markets, as well as global supply chains. The composite output PMI had dropped from 50.7 in March to 48.6 in April, indicating a contraction in activity for the first time since December 2024. This had been driven entirely by weaker services activity. Manufacturing had held up on the back of defence spending in Germany and some inventory build-up in anticipation of the impact of the energy shock. Longer delivery times and rising input prices suggested supply chains were coming under pressure. The European Commission’s Economic Sentiment Indicator had declined markedly in April, extending the fall recorded in March. This had been primarily driven by a sharp decline in consumer confidence and clearly pointed to weakening growth momentum. While unemployment remained close to historical lows – with figures for March due to be published on 30 April – labour demand had cooled further. According to staff estimates, the job vacancy rate was likely to continue to decline, having fallen from 2.2% in the last quarter of 2025 to 2.1% in the first quarter of 2026. The composite employment PMI had stood at 49.8 in April, reflecting increases in both manufacturing, where it remained well in contractionary territory below the threshold of 50, and in services, where it remained just above that threshold. With respect to fiscal policies, energy price compensation measures recently announced by governments had so far been modest in size and were mainly focused on indirect taxes on energy and targeted subsidies, so that the euro area fiscal stance was likely to be slightly more expansionary in 2026 than previously expected and slightly more contractionary in 2027. Turning to financing conditions, the war in the Middle East had caused significant volatility in global financial markets. Overall financial conditions remained tighter than before the war. The cost of issuing market-based debt had risen to 3.9% in March, from 3.5% in February. The annual growth rate of bank lending to firms had increased to 3.2% in March, from 3.0% in February, while the growth rate of corporate bond issuance had fallen to 3.9%, from 4.5% in February. Credit standards for loans to firms had tightened in the first quarter of 2026, as reported in the latest bank lending survey for the euro area. This tightening was due to banks becoming more concerned about the economic risks faced by their customers. Demand for loans to firms had decreased slightly in the first quarter, especially for fixed investment. The most recent round of the Survey on the Access to Finance of Enterprises pointed to a further tightening of financing conditions for firms, broadly confirming the signals from the bank lending survey. Monetary policy considerations and policy options Mr Lane proposed that the Governing Council keep the three key ECB interest rates unchanged. The incoming information had been broadly consistent with the Governing Council’s previous assessment of the inflation outlook and the risks surrounding it. The Governing Council remained well positioned to navigate the current uncertainty and to gather more information on the implications of the war for inflation and economic activity in the medium term. These would depend on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects. By the next meeting in June, the Governing Council would have additional information – including new projections and some data points for April and May, as well as more clarity on the evolution of the war – that would help it to assess the implications for the monetary policy stance. In this context, the data-dependent, meeting-by-meeting approach, with no pre-commitment to a particular rate path, continued to provide a solid framework for determining the appropriate monetary policy stance. 2. Governing Council’s discussion and monetary policy decisions Economic, monetary and financial analyses Regarding the economic analysis, members broadly agreed with the assessment provided by Mr Lane in his introduction. Starting with the external environment, the war in the Middle East was weighing on energy markets, confidence and near-term growth prospects. At the global level, uncertainty remained elevated, as did volatility in markets. Global economic activity had remained relatively resilient thus far, which was broadly consistent with the March baseline staff projections. However, the longer the conflict persisted and the Strait of Hormuz remained closed, the greater and more persistent the likely unfavourable macroeconomic impact would be. The disruption to energy markets was becoming more protracted and working its way through the economy and global supply chains, with more persistent and broader effects on both inflation and economic growth becoming increasingly likely. The most recent developments in oil markets suggested a shift away from the assumptions underlying the March baseline staff projections. Although the global economic outlook had weakened somewhat, the global economy had so far displayed resilience. However, the economic impact of the war in the Middle East was not the same everywhere. Asian countries were most affected, in particular countries in South-East Asia, but also China and India, largely owing to their relatively high dependence on energy imports from the Middle East. While the near-term growth outlook for the United States had also weakened, this change was comparatively small, reflecting the fact that the United States was an oil and gas producer. Moreover, artificial intelligence constituted a positive supply shock, and the associated investment was providing a strong counteracting force for the US economy. Regarding developments in oil markets, spot market prices had lately been considerably higher than prices for futures with the shortest terms, in part reflecting disruptions and strains in the physical market for oil. This raised the question of which prices mattered most for the economic outlook and how this disconnect might play out. The spot price might matter more for the immediate economic impact, as this was the price faced by firms purchasing oil today. Nonetheless, futures prices played a key role in the assumptions for the projections and contained information about the market’s assessment of the outlook, which currently suggested that the energy price shock could be persistent, although some degree of normalisation in energy markets over time was anticipated. The current expectation was that the gap between spot and futures prices was likely to persist over the next few months, with spot prices converging to futures prices thereafter. However, it was recognised that futures prices could move towards spot prices, especially if the conflict was not quickly resolved. In 2022 spot prices had overshot futures prices for an extended period of time – almost one year. Thus, it was cautioned that current oil price futures might be at the lower end of what would eventually materialise, which would have implications for the outlook for both inflation and growth. On the other hand, the recent announcement by the United Arab Emirates of its intention to leave OPEC could have a downward impact on future oil prices, particularly once the conflict was resolved. Over the next six weeks, the situation in energy markets, and oil markets in particular, could reach a fork in the road. On the one hand, if the flow of energy products through the Strait of Hormuz increased, oil spot and futures prices would likely respond favourably. Yet, even in this case, it would still take some time for oil and gas supplies to normalise, with authorities in Saudi Arabia and Qatar having warned that repairing destroyed facilities would take time. On the other hand, if the conflict persisted or even deteriorated, it was likely that the situation in energy markets would become more critical, with oil spot and futures prices, as well as natural gas prices, increasing further and shortages becoming increasingly likely. The International Energy Agency had recently raised this prospect as a major concern. One difference in energy price developments between the current situation and 2022 was that, so far, the increase in European natural gas prices had been much more contained. This was due to two main factors: the current crisis was not centred in Europe, and European energy markets, particularly for gas and electricity, had become more resilient, in part owing to an increased use of renewables and the diversification of supply sources, especially liquefied natural gas (LNG) imports. Looking ahead, one reason put forward by analysts for markets being relatively sanguine on gas prices was that even more LNG was likely to become available over the coming years. It was also noted that this time the impact on gas prices was being more keenly felt by Asian economies, in particular China and India. This notwithstanding, it was cautioned that while the increase in gas prices had remained more contained this time, the situation in Europe might deteriorate if gas storage facilities had not been sufficiently replenished by the start of the heating season in the autumn. The conflict and the ceasefire were continuing, with high uncertainty about the future course of events. Current pricing in oil markets, with a strong backwardation – a negative slope – in the futures curve, could be seen as consistent with the view that the conflict would soon be resolved. However, there was also the possibility that current market pricing was based on an assessment of the situation that was too benign. With regard to economic activity, members noted that the euro area economy had been showing some, albeit relatively modest, momentum when the current turbulence started. However, since the start of the war in the Middle East, the economic environment had clearly deteriorated and uncertainty was exceptionally high, with the conflict weighing on confidence, energy markets, supply chains and near-term growth prospects. Accordingly, the outlook for euro area economic activity had worsened since the start of the conflict. There were already some indications, particularly in survey data but also some hard data, that the situation was weighing on sentiment and activity. At the same time, it was noted that there was not much in the way of new hard data and that evidence from these data on the effects of the shock remained limited thus far. The first quarter GDP growth outcome of 0.1%, released on the morning of Thursday, 30 April, was lower than anticipated. However, it was observed that the outcome was higher when Ireland was excluded, at 0.2%. Regarding country releases, it was noted that the data for Germany were somewhat better than expected, while for France growth was flat for the first quarter and weaker than expected. A concern was expressed that the more global nature of the shock could mean that the range of future growth outcomes could be wider, particularly to the downside, than currently considered. In terms of soft data available for the second quarter, the composite output PMI for the euro area had fallen in April. This had been driven primarily by weaker services activity. While manufacturing had held up and was still perceived to be expanding, it was unclear how much reassurance could be taken from this, as it might reflect a degree of precautionary frontloading. It was also noted that the European Commission’s Economic Sentiment Indicator had declined markedly in April, extending the fall observed in March, with a particularly pronounced drop in consumer confidence. Despite the indications of some weakening, it was argued that the euro area had displayed adaptability and resilience over recent years and there were reasons to expect that this could continue. One factor was that the euro area was now less dependent on fossil fuels. In addition, according to information from the Corporate Telephone Survey, government spending on defence and infrastructure, investment in artificial intelligence and continued growth in employment were all factors pointing to some resilience in consumption and investment. At the same time, it was argued that survey signals should be interpreted with caution as they might overstate the change in underlying fundamentals, with information from other sources giving mixed signals as to whether the picture had really changed much from March. Moreover, persistently elevated uncertainty, surging energy costs, the decline in consumer confidence, some signs of weakening in labour markets and tighter financial and lending conditions were all weighing on the economic outlook. Furthermore, it was noted that supply chain disruptions could also have a negative impact on economic activity, in addition to any upward impact on inflation. Turning to the main components of GDP – consumption, investment and trade – there were mixed signals pointing to both resilience and fragility. There was some concern that private consumption could become weaker than expected owing to the combination of higher energy prices and a drop in consumer confidence. On the other hand, some factors, including the labour market and wage growth, remained broadly supportive of consumption. Signals were mixed for both housing and business investment. While the European Commission’s composite building activity indicator had strengthened, the PMI housing output indicator had ticked down and first quarter data for France also suggested that real estate activity was weakening. Looking ahead, higher expected mortgage rates and tighter credit conditions and lending standards might dampen the outlook for housing. As regards business investment, high uncertainty and tighter financing conditions and lending standards were creating headwinds. However, short-term indicators, such as the European Commission’s confidence indicator (except for the intangibles component) and the PMI for capital goods, had improved further in March. Further support to investment would come from defence and infrastructure spending as well as technology and artificial intelligence-related investment. Meanwhile, export volumes, in particular to the United States, had declined from 2024 levels, while imports had risen, in particular from China and South-East Asia. Looking ahead, the war might result in weaker foreign demand, adding to continued challenges from US tariffs and strong competition from China. The labour market had remained largely resilient, although there were signs of some easing of labour market tightness, particularly compared with the situation in 2022. On the one hand, the unemployment rate remained close to historical lows and was predicted to remain there, and the employment PMI had remained broadly stable in April. On the other hand, there were indications of some moderation in job vacancies and vacancy rates. Members discussed the implications of the current shock being more global in nature than the 2022 shock, which had affected Europe the most. It was explained that a global shock in a multi-sector model with production networks generated a more negative hit to economic activity as well as more pressure on import prices than a local shock, as higher energy costs were embedded in the prices of imported intermediate and final goods. However, it was clarified that, while a global shock meant a bigger impact for a given size of shock, this did not mean that the current shock or its impact would necessarily be larger, as this depended on the ultimate size of the shock, its duration and its composition. In addition to the supply-side nature of the shock, concerns were raised regarding possible generalised supply-side constraints, which would have implications for both activity and inflation. While indications of these had been relatively limited thus far, some signals, such as increasing delivery times, were becoming more evident, and the longer the conflict persisted the more likely it was that these constraints would grow in scope. Physical supply constraints were already apparent in energy markets, affecting quantities, inventory levels and prices. Information from major shipping countries suggested that shipping was being rerouted away from higher-risk corridors and taking the longer route via Cape of Good Hope. This could push up both transportation costs and delivery times, which, in turn, might lead to further price pressures and result in supply bottlenecks. Looking ahead, the risk of broad-based supply chain disruptions was considered a key issue. Turning to fiscal policy, members highlighted the urgent need to strengthen the euro area economy while maintaining sound public finances. It was underscored that any fiscal responses to the energy price shock should be temporary, targeted and tailored. This was particularly important as fiscal space was currently more limited than in 2022. Furthermore, it was noted that, while the fiscal response had been relatively contained thus far, at less than 0.1% of euro area GDP, pressure for additional measures might grow should the situation deteriorate. Regarding structural policies, members stressed that reforms to enhance the euro area’s growth potential and accelerate the energy transition to reduce reliance on fossil fuels were more vital than ever. Completing the savings and investments union was key to funding innovation, supporting the green and digital transitions and improving productivity. The digital euro and tokenised wholesale central bank money would enhance Europe’s strategic autonomy, competitiveness and financial integration, and would boost innovation in payments. It was thus essential to swiftly adopt the Regulation on the establishment of the digital euro. Simplifying and harmonising rules across the EU’s Single Market would help European firms grow faster. Against this background, members assessed that the risks to the growth outlook were to the downside, with risks having intensified since the Governing Council’s previous monetary policy meeting in March. The war in the Middle East remained a downside risk to the euro area economy, adding to the volatile global policy environment. Prolonged disruption of the supply of energy could increase energy prices further and for longer than currently expected. These factors would erode incomes and make firms and households more reluctant to invest and spend. The drag on growth would intensify if the closure of major shipping routes were to cause acute shortages of key inputs that forced euro area firms to curtail output. A worsening of global financial market sentiment could further dampen demand. Additional frictions in international trade could exacerbate supply chain disruptions, reduce exports and weaken consumption and investment. Other geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remained a major source of uncertainty. By contrast, growth could turn out to be higher if the economy proved to be more adaptable to the disruption caused by the war in the Middle East or if the conflict were resolved more quickly than currently expected. Moreover, planned defence and infrastructure spending, reforms to enhance productivity and euro area firms adopting new technologies might drive up growth by more than expected. New trade agreements and a deeper integration of the Single Market could also boost growth beyond current expectations. With regard to price developments, members concurred with the assessment presented by Mr Lane in his introduction. The incoming information had been broadly consistent with the previous assessment of the inflation outlook and, while upside risks to inflation had intensified, indicators of underlying inflation had changed little over recent months. Although inflation expectations had risen significantly over shorter horizons, most measures of longer-term inflation expectations stood at around 2%, supporting the stabilisation of inflation around target in the medium term. According to Eurostat’s flash estimate published at 11:00 on 30 April, inflation had risen to 3.0% in April, from 2.6% in March and 1.9% in February. The rise had been driven by higher energy prices caused by the war in the Middle East. Energy price inflation had jumped to 10.9% in April, after 5.1% in March and -3.1% in February. The rise in energy prices was not yet reflected in higher electricity bills, but some increases might materialise over the coming months. Wholesale natural gas prices had eased since March, but there were risks to natural gas supplies, in particular LNG, in the global market, which could push up gas prices later in the year. Food price inflation had edged up to 2.5% in April from 2.4% in March, but was unchanged compared with February. Looking ahead, while there could still be downward pressures from past declines in global food commodity prices, there was upward pressure from fertiliser prices, and firms had increased selling price expectations in food-related sectors, according to the Survey on the Access to Finance of Enterprises. Inflation excluding energy and food had decreased to 2.2% in April, from 2.3% in March, reflecting a fall in services inflation, which had declined to 3.0% from 3.2% in March. Goods inflation had increased to 0.8%, from 0.5% in March. It was argued that the current shock had so far been more contained than in 2022 and was therefore less likely to trigger non-linear effects. Another possible countervailing factor was that, on this occasion, the impact on gas prices had been much smaller than in 2022, when gas prices in Europe had been particularly affected. Nonetheless, it was recalled that the inflationary impact of a global energy price shock might be amplified via supply chains, including through more expensive imports from China. This could push up non-energy industrial goods inflation, meaning that the previously observed pattern of higher services inflation being offset by lower non-energy industrial goods inflation might fade, posing upside risks to core inflation. At the same time, inflation in China was expected to remain low in relative terms and would therefore continue to have a dampening impact on non-energy industrial goods inflation. It was also questioned whether the current situation should be considered as one shock or rather sequences of shocks – for example, starting with oil before later affecting fertiliser and then food. Regarding

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