ECB Flags Inflation Challenges

The European Central Bank (ECB) has cautioned that structural shifts, including geopolitical tensions and the increasing use of artificial intelligence, are creating a more uncertain and potentially volatile inflation environment. In an updated monetary policy strategy statement, the central bank highlighted that these shifts could lead to larger deviations from its symmetric 2% inflation target.

To address these challenges, the ECB emphasised the importance of appropriately forceful or persistent monetary policy action in response to significant and sustained deviations of inflation from the target in either direction. This approach aims to prevent inflation expectations from becoming de-anchored and inflation deviations from becoming entrenched. The Governing Council takes into account not only the most likely path for inflation and the economy but also surrounding risks and uncertainty, including through the appropriate use of scenarios and sensitivity analyses. The ECB remains committed to a data-dependent approach, avoiding pre-commitment to a particular rate path.

The Governing Council intends to periodically assess the appropriateness of its monetary policy strategy, with the next assessment expected in 2030. The first regular monetary policy meeting of the Governing Council applying the updated strategy will be held on 23-24 July 2025.