Why is the ECB pausing rate hikes now despite earlier signals of more tightening?

The ECB is pausing because 'a string of benign data on prices, wages, economic activity and inflation expectations in the weeks since has made a quick follow-up step less urgent,' even though rising oil prices above $90 a barrel and risks like summer heat damaging crops or disrupting river shipping could reignite inflation pressures later.

What evidence does the article cite to suggest second-round inflation effects—like wage-price spirals—are not yet materializing in the euro zone?

The article states that 'wage growth is continuing to ease, the labour market is relatively soft — particularly in Germany,' firms expect 'more muted pay pressures,' consumers have 'dialled back their price expectations,' services inflation 'actually slowed last month,' and there is 'next to no evidence of second-round effects' in detailed figures.

ECB to Pause Rate Hikes but Signal More May Be Needed

Jul 22, 2026

The ECB plans to pause interest rate hikes while signaling future tightening driven by soaring oil prices and potential food inflation risks. Economists warn energy shocks and agricultural commodity pressures could reignite inflation across the euro zone.

reuters

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