BRUSSELS

The war in Iran is expected to accelerate inflation in Europe by pushing up energy prices, the European Central Bank (ECB) said Thursday, underscoring heightened economic uncertainty across the euro area.

"The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth. It will have a material impact on near-term inflation through higher energy prices," ECB President Christine Lagarde said at a media briefing in Frankfurt.

"The Governing Council today decided to keep the three key ECB interest rates unchanged. We are determined to ensure that inflation stabilizes at our 2% target in the medium term," she added.

Lagarde emphasized that higher energy prices driven by the war would have a "material impact on near‑term inflation," and noted that staff projections now project inflation averaging 2.6% in 2026, 2% in 2027 and 2.1% in 2028, all revised upward since December.

Energy costs are the main contributor to the revised forecasts, she said.

Inflation, excluding energy and food, is also expected to run above previous projections, averaging 2.3% in 2026, 2.2% in 2027 and 2.1% in 2028, reflecting energy costs feeding through to broader price pressures.

Lagarde warned that a prolonged disruption in oil and gas supplies due to the war could push inflation even higher and weaken economic growth.

"The implications for medium-term inflation depend crucially on the magnitude of indirect and second-round effects of a stronger and more persistent energy shock," she said.

ECB staff forecasts euro‑area growth of 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028, marking a downward revision for 2026 amid weaker real incomes, dampened confidence and commodity market volatility linked to the war.

"The external environment remains challenging, including in light of volatile global trade policies. The war in the Middle East is disrupting commodity markets and weighing on real incomes and confidence," she said.

"The war in the Middle East is a downside risk to the euro area economy, adding to the volatile global policy environment. A prolonged war could increase energy prices further and for longer than currently expected, and also weigh on confidence," added Lagarde.