European Central Bank Vice President Boris Vujcic signaled that inflation will stay elevated longer than expected, defending the ECB's recent rate hike as appropriate given persistent price pressures. Taking over as the ECB's No. 2 earlier this month, Vujcic emphasized that both headline and core inflation are expected to remain above target through 2027, underpinning the policy move announced last week.

The ECB's quarter-point increase in June brought borrowing costs to their highest since 2015, as policymakers grapple with 3.2% inflation driven by war-related supply shocks that are spreading beyond energy. While most long-term inflation expectations remain anchored around the ECB's 2% target, officials are balancing the need to curb persistent price growth against risks to an already slowing economy in the euro zone.

Vujcic dismissed concerns about wage-driven second-round effects, noting that compensation per employee is declining and there's no evidence of de-anchored expectations. Chief Economist Philip Lane warned that inflation could remain above target for an extended period, reinforcing the case for continued vigilance. The ECB stands ready to adjust policy as needed, with President Lagarde emphasizing the institution's agility in responding to evolving shocks.

The message from ECB officials is clear: despite some progress on global supply chains, the path to sustained 2% inflation remains uncertain, and policy will stay reactive to incoming data rather than committing to a preset trajectory.