ECB Faces Rising Inflation and Slowing Growth Ahead of April Policy Meeting

FRANKFURT, April 29, 2026 – The euro traded near $1.171 on Wednesday ahead of the European Central Bank’s April 30 policy meeting, as investors weighed recent data showing higher inflation and weaker growth in the euro area.

Inflation exceeds target

Eurozone headline inflation rose to 2.6% year-on-year in March, up from 1.9% in February, according to Eurostat. The figure exceeds the ECB’s 2% target and is the highest since July 2024.

Consumer inflation expectations have also risen. The ECB’s latest Consumer Expectations Survey, covering nearly 19,000 respondents across 11 eurozone countries between March 5 and March 30, showed median 12-month expectations increasing to 4.0% in March from 2.5% previously. Expectations for three years ahead rose to 3.0%, while the five-year outlook edged up to 2.4%.

Growth indicators weaken

The International Monetary Fund, in its April 14 World Economic Outlook, lowered its 2026 eurozone growth forecast to 1.1%, down from 1.4% in 2025 and below its January estimate of 1.3%. The IMF cited geopolitical tensions and higher energy costs. Germany’s economy is projected to grow by 0.8% in 2026.

The flash eurozone composite Purchasing Managers’ Index, compiled by S&P Global, fell to 48.6 in April — below the 50 threshold that separates expansion from contraction for the first time since 2024, reaching a 17-month low. The decline was driven by a contraction in services activity, while manufacturing showed modest expansion.

The eurozone unemployment rate remained at 6.1% in February, near historic lows, according to Eurostat — a factor some economists say gives the ECB room to maintain its current policy stance.

ECB officials stress data dependence

ECB President Christine Lagarde said at the IMF Spring Meetings that higher energy costs linked to tensions in the Middle East have pushed the euro area economy below the ECB’s baseline projections, though not sufficiently to warrant an immediate shift in policy.

“We are currently between baseline and adverse scenarios,” Lagarde said.

Minutes from the ECB’s March meeting showed that policymakers see increasing upside risks to inflation, partly linked to geopolitical developments and their impact on energy markets. The Governing Council also emphasized that keeping the deposit rate at 2% should not be interpreted as a fixed policy stance, reiterating a data-dependent approach.

ECB staff projections released in March raised the 2026 inflation forecast to 2.6%. In an adverse scenario incorporating heightened energy uncertainty, the ECB estimated inflation could reach 3.5% while GDP growth could slow to 0.6%. The IMF has outlined more severe scenarios in which inflation could exceed 6% if supply disruptions intensify.

Market pricing points to potential June move

A Reuters survey of economists conducted between April 17 and 23 showed broad consensus that the ECB will leave its deposit rate unchanged at 2% at the April meeting.

However, expectations for a potential rate increase in June have strengthened. Nearly half of surveyed economists anticipate a 25-basis-point hike, according to Reuters. Interest-rate swaps suggest markets have priced in between 20 and 40 basis points of tightening by mid-year.

Goldman Sachs, Deutsche Bank, and Nordea have revised their forecasts, with some projecting multiple rate increases through the second half of 2026 depending on inflation and energy market developments.

Not all analysts expect a tightening cycle. “The growth slowdown argues for caution,” said [NAME], an economist at [INSTITUTION]. “The ECB may wait until there is clearer evidence that inflation is becoming entrenched before moving.”

Focus on forward guidance

Market participants will monitor the ECB’s statement and Lagarde’s press conference for signals on future policy direction. Any shift in language regarding inflation risks could affect expectations for rate moves in the coming months.