Deutsche Bank Research forecasts the European Central Bank will hold its rates steady on Thursday, despite ongoing energy price uncertainty stemming from the reignited Middle East tensions.
"Despite these fluctuations, a pause in July is expected. Current oil prices remain below 11 June levels, and the June HICP inflation data, which came in softer than expected, cast some doubt on the rapid emergence of indirect inflation. Furthermore, our June dbDIG survey indicated a complete unwinding of the initial energy shock's impact on household inflation expectations. Waiting until September will provide the ECB with two additional HICP prints and updated staff forecasts, enabling a more informed decision," the research firm said in July 17 preview note, adding it expects the central bank to maintain "neutral communications" with a hawkish stance on inflation.
The euro area's annual inflation eased to 2.8% in June from 3.2% a month ago, according to final data from Eurostat. The eurozone's annual core rate, which excludes energy, food, alcohol and tobacco, stood at 2.4%, below May's 2.6%.
Conversely, analysts forecast a "second and final" rate hike in September to 2.50%, with the "measured tightening" bringing the rates to the top end of the neutral range. The research firm said the move will be justified by core inflation forecasts remaining high alongside volatile energy concerns and persistent expectations of indirect inflation effects.
"Despite initial fears of tightening credit conditions due to geopolitical uncertainty, actual credit data has shown no such effect. By feeding the resilience of growth, this reduces ECB apprehension about further rate increases," the note said. Deutsche Bank expects euro area headline inflation to decline from 2.8% in 2026 to 2.3% in 2027, while core inflation is expected to ease slightly from 2.5% to 2.4% over the same period.