The European Central Bank stands ready to raise interest rates again in July if Middle East conflict escalation demands it, Governing Council member Joachim Nagel said Friday. The bank just increased borrowing costs for the first time since 2023, becoming the first major central bank to respond to Iran war-driven inflation. Nagel emphasized the ECB will keep all options open and maintain its data-dependent approach.

High energy costs are reverberating through European economies, pushing consumer prices above 3% in May while business activity contracts. The Bundesbank president noted the shock's strength and persistence, making Thursday's rate increase unavoidable even if the conflict eases quickly. Core inflation pressures mount as energy costs spread to other sectors.

Markets price in two additional quarter-point hikes to contain inflation, with another move potentially arriving as early as July. The International Monetary Fund projected a cumulative 50 basis point increase this year to prevent headline and core inflation from exceeding 2% through 2028. ECB forecasts show quicker consumer price gains ahead, with economic growth slowing as demand weakens.

Other council members echoed caution. Primoz Dolenc said the recent hike provides room to assess broader conditions, while Ulo Kaasik stressed upside inflation risks remain elevated. The ECB's tightening cycle reflects mounting pressure to anchor price stability amid geopolitical uncertainty that shows no signs of abating.