Higher energy prices are the main driver of euro-area inflation, ECB economists Kristina Barauskaitė Griškevičienė and Claus Brand wrote in a paper on Tuesday. Adverse energy supply factors accounted for around 90% of the increase in energy inflation between January and May 2026, while monetary and fiscal policies exerted only slight downward pressure. The current shock has been driven partly by the ongoing war in the Middle East and the subsequent closure of the Strait of Hormuz. The ECB has responded more gradually than during 2021-22, when inflation reflected both major supply disruptions and a rapid post-pandemic demand rebound supported by accommodative fiscal and monetary policies. After the war began at the end of February, the ECB left rates unchanged initially and delivered its first increase in three years on 11 June, raising the deposit rate from 2% to 2.25%. Even its most optimistic scenario, which assumed an early end to the war, did not see inflation returning to the 2% target before 2027. Inflation reached 3.3% in August, up from 2.9% in July, and market pricing points to another increase to 2.50% from 2.25% at the ECB meeting on 10 September.