The European Central Bank is once again facing a familiar foe: an energy-driven inflation surge that threatens to unmoor its price stability goals.
At the heart of the issue is a recent statement from ECB Governing Council member Yannis Stournaras. He warned that the ongoing disruption at the Strait of Hormuz, a critical chokepoint for global energy supplies, could trigger 'second-round effects' on the economy. This isn't just about higher prices at the gas pump; it's about the risk of a broader, more persistent inflation cycle taking hold.
The causal chain is quite clear. First, the closure of the strait, through which about a fifth of the world's oil passes, created a significant supply shock. Data confirms that oil flows through the chokepoint dropped by nearly 30% in the first quarter of 2026. Second, this disruption caused energy prices to soar. Brent crude, which was around $70 per barrel in February, shot up to over $100. Third, this directly fueled a re-acceleration in Euro area headline inflation, which hit 3.0% in April, with energy prices alone jumping 10.9% year-over-year. This initial price spike is what economists call a 'first-round effect'.
What the ECB truly fears, however, is the fourth step: the second-round effects. This happens when higher energy costs lead workers to demand higher wages to protect their purchasing power. In turn, businesses, facing higher labor and energy costs, raise the prices of their goods and services. This can create a dangerous wage-price spiral, making inflation much harder to control and de-anchoring long-term inflation expectations from the ECB's 2% target.
For now, the ECB's policy is one of vigilant patience. Officials have made it clear they can 'look through' the initial energy shock as long as it doesn't spill over into the broader economy. Their decision to raise interest rates hinges entirely on whether this energy shock proves persistent enough to ignite widespread wage growth and push up inflation expectations. It's a delicate balancing act between taming inflation and avoiding a policy mistake that could tip the economy into a recession.
- Second-round effects: An economic phenomenon where an initial price shock (e.g., higher oil prices) leads to a secondary wave of inflation through higher wage demands and broader price increases by firms.
- Headline Inflation: A measure of the total inflation within an economy, including commodities such as food and energy prices, which tend to be much more volatile.
- Strait of Hormuz: A narrow waterway linking the Persian Gulf with the Gulf of Oman and the Arabian Sea. It is one of the world's most important strategic chokepoints for oil and LNG transport.