Weekly Briefing - Europe braces for higher inflation, stagflation fears grow

Here is the week in economics, explained without the jargon.

Europe’s inflation forecast jumped

The European Central Bank held its interest rates steady but significantly raised its 2026 inflation forecast for the eurozone - from around 1.9% to 2.6% - while cutting its growth forecasts for this year and next. The culprit, once again, was energy prices tied to the ongoing conflict in the Middle East.

“Stagflation” fears resurfaced

Global stocks fell sharply this week, with US markets hitting a four-month low. Part of the worry driving the sell-off is a scenario economists call stagflation: slow economic growth combined with rising prices at the same time. It is an unusually difficult situation for central banks to fix, because the normal tool for fighting inflation - raising rates - tends to slow growth down even further.

Other data held up better

Away from the inflation headlines, weekly unemployment claims in the US actually fell slightly, and industrial production ticked up a touch - signs the underlying economy has not fully cracked under the pressure.

What it means for you

“Stagflation” is one of the more genuinely uncomfortable words in economics, precisely because there’s no easy fix. It is worth understanding the term, but not worth panicking over - one disappointing quarter of data does not confirm a trend.