European Central Bank increases main deposit rate to 2.25%, with two further rises expected by next spring

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The European Central Bank has raised interest rates for the first time since 2023 in response to higher inflation caused by the war in Iran.

The ECB raised its main deposit rate from 2% to 2.25% in a move that financial markets expect to be the first of three rises by next spring.

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© Photograph: Kirill Kudryavtsev/AFP/Getty Images

© Photograph: Kirill Kudryavtsev/AFP/Getty Images

© Photograph: Kirill Kudryavtsev/AFP/Getty Images

The European Central Bank raised interest rates for the first time since 2023. It expects inflation to run hotter than previously thought, and downgraded its forecast for economic growth.

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As inflation outpaces workers’ wages, the Trump administration insists that its agenda is working.

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The Consumer Price Index is one of the last major data releases ahead Kevin M. Warsh’s first meeting as chair of the Federal Reserve.

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Before the conflict began, inflation was at 2.4%, but the closure of the strait of Hormuz has affected energy prices

US inflation jumped to an annual rate of 4.2% in May, the third consecutive monthly increase since the start of the Iran war and a three-year high, as Americans continue to face steep oil prices.

Prices have increased sharply over the past several months, rising at an annual rate of 3.3% in March before going up to 3.8% in April. In February, before the conflict began, inflation was at 2.4%.

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© Photograph: Bonnie Cash/UPI/Shutterstock

© Photograph: Bonnie Cash/UPI/Shutterstock

© Photograph: Bonnie Cash/UPI/Shutterstock

As the war in Iran persists, signs point to a prolonged period of higher prices and slower growth rather than a quick shock.

© Violette Franchi for The New York Times