The European Central Bank sees no evidence that the Middle East conflict is de-anchoring inflation expectations or triggering dangerous second-round effects, President Christine Lagarde told the European Parliament’s economic committee in Brussels on Monday. Headline inflation in the currency bloc has breached 3 percent, and revised data showed core inflation accelerating to 2.6 percent in May from 2.2 percent in April. Yet Lagarde characterised the current shock as smaller than the 2021–22 episode and argued that a stronger labour market, solid household balance sheets and a different policy mix make the transmission of energy costs more limited this time. The ECB raised rates earlier this month for the first time since September 2023 and, while markets price in at least another quarter-point increase to 2.5 percent this year, Lagarde insisted the bank remains data-dependent and is not pre-committing to any rate path.

Viewed from Washington, the same war is producing a markedly different strain. The International Monetary Fund’s Africa director, Zeine Zeidane, warned that the region is entering “a difficult moment” as the fallout from the conflict compounds a sharp decline in official development assistance. Bilateral aid to sub-Saharan Africa fell an estimated 26 percent in 2025, from roughly $36 billion to $29.2 billion, driven by donor-country budget decisions rather than economic changes in recipient states. Even with a ceasefire, Zeidane said, Gulf energy production will take six to seven months to return to full capacity, prolonging elevated fertiliser and energy prices for import-dependent African economies. The Fund has accelerated programmes for Ethiopia, The Gambia and Burkina Faso, reached a staff-level agreement with São Tomé and Príncipe on a $25 million facility, and is in fast-track talks with Malawi.

African governments are navigating the squeeze through a mix of spending cuts, increased domestic borrowing and efforts to raise internal revenue, each carrying trade-offs between fiscal stability and long-term development. The IMF urged prioritisation of high-impact aid for fragile states and broader use of blended finance to draw private capital into infrastructure and agriculture. In Brussels, Lagarde separately called for G7 discussions on what she termed excessive global imbalances, including the undervaluation of the Chinese yuan, though she dismissed the idea of a new Plaza Accord as anachronistic.

The ECB’s next monetary policy meeting and the IMF board’s consideration of the São Tomé review are the immediate operational milestones. The trajectory of oil prices—Brent fell below $80 a barrel on Monday after Washington and Tehran agreed a roadmap for a final deal—and the durability of the ceasefire will determine whether the current cautious policy calibration holds.