On Tuesday, July 14th, Brent crude oil rose above $86 per barrel, the yield on UK two-year government bonds rose to approximately 4.35%, the yield on UK ten-year government bonds rose to approximately 5.03%, and the yield on German ten-year government bonds touched approximately 3.11%. The oil price shock is pushing the market back from "waiting for inflation to fall" to "preventing double-dip inflation," with the repricing of short-term interest rates in the UK and Europe moving significantly faster than adjustments to economic growth expectations. The latest interest rate swap pricing shows that the UK market has already priced in a 25 basis point rate hike in September as its core scenario, with the weight of further tightening before the end of the year increasing simultaneously; the Eurozone market also views September as a major policy window, while the probability of immediate action in July remains limited. At the beginning of the month, the swap market priced in less than 25 basis points of cumulative rate hikes in the UK and Europe over the next year; now, in just a few days, it has shifted to preventing continuous tightening, indicating that the impact of oil prices on the policy path is amplified in a non-linear manner. The real change lies not in the market's sudden conviction that central banks will inevitably raise interest rates consecutively, but in the re-entry of previously almost ruled-out upside tail risks into benchmark pricing. Some analysts believe that if oil prices remain at current levels, another rate hike will still face a high hurdle; if oil prices continue to rise, rate hikes will be closer to the benchmark outcome. In the UK, consumer prices rose 2.8% year-on-year in May, with the core index rising 2.6%, but service prices rose to 3.7%, and motor fuel prices rose 24.6% year-on-year. In the Eurozone, the harmonized consumer price index (HCI) rose 2.8% year-on-year in June, with the energy component still as high as 8.7%, service prices rising 3.2%, and the core index excluding energy, food, alcohol, and tobacco at 2.4%. These data indicate that while overall inflation has declined compared to the previous period, price pressures have not disappeared uniformly. Sustained high oil prices will first transmit to fuel, transportation, and utilities, and then spread through logistics, food, corporate profit margins, and wage negotiations. What central banks are truly preventing is not a one-off energy price increase, but rather the regaining of pricing power by businesses, rising consumer inflation expectations, and increased stickiness in service prices. As long as wages and service prices reinforce each other, the energy shock, even if it subsequently subsides, could leave a longer-lasting mark on core inflation. The Bank of England's current interest rate is 3.75%, and it remained unchanged at its June meeting by a 7-2 vote, with two members advocating for a rate hike to 4%, indicating a clear tightening camp within the committee. Governor Andrew Bailey stated in June that he had expected inflation to return to 2% by now, but energy prices remained above pre-conflict levels. This means the Bank of England's key monitoring variables will shift from single-month inflation to wages, service prices, and expectations. The European Central Bank raised its deposit facility rate by 25 basis points to 2.25% in June, so the next move needs to demonstrate the sustainability of the energy shock. The Eurozone is more dependent on energy imports but has a weaker growth base; too rapid tightening could amplify the decline in demand. The resulting policy constraint is that the closer oil prices are to $90 per barrel and the longer they remain there, the more the policy focus will shift towards inflation; if supply risks subside quickly, growth pressures will again limit the magnitude of rate hikes. The current shock is primarily reflected in short-term interest rates, the shape of the yield curve, and real interest rates, rather than in the outcome of a single meeting. Rising short-term yields reflect increased policy expectations, while long-term yields face pressure from inflation compensation, fiscal supply, and term premiums. Therefore, the UK bond curve may see a repricing where "short-term yields are constrained by the central bank, while long-term yields are constrained by inflation and supply." Within the Eurozone, it's necessary to observe whether the interest rate spread between core countries and highly indebted member states widens, as rising energy costs have an asymmetrical impact on fiscal subsidies, corporate profits, and credit quality. In the foreign exchange market, the pound and euro will not be solely supported by interest rate hike expectations. Rising oil prices, on the one hand, raise interest rate spread expectations, and on the other hand, worsen trade conditions and suppress growth expectations. The combined effect of these two forces is more likely to amplify volatility rather than create stable one-way pricing. The credit market needs to be wary of compressed profit margins in transportation, aviation, chemicals, and energy-intensive manufacturing. US June consumer price data will be released on July 14th during the North American session, with the core indicator expected to rise 0.2% month-on-month. Federal Reserve Governor Christopher Waller recently stated that if inflation exceeds the target and expectations lose their anchor, policy may need to tighten faster, more significantly, and for a longer period. This statement will enhance the sensitivity of global interest rate markets to the persistence of energy shocks, but the interest rate decisions of the Bank of England and the European Central Bank will ultimately depend on local wages, service prices and inflation expectations, rather than simply following external policies.