An ECB policymaker flags rising risks of second-round inflation effects from extended energy price shocks amid regional tensions.
A European Central Bank policymaker cautioned that a prolonged Middle East conflict heightens the risk of broader inflation pressures, potentially embedding price shocks into wages and services. While no clear second-round effects have emerged yet, the balance of risks has deteriorated, reinforcing expectations for a 25 bps rate hike in June.
Euro area inflation accelerated to 3.2% in May, with core inflation at 2.5%, both exceeding the ECB’s 2% target. Markets anticipate at least two more rate increases this year as energy prices remain elevated due to shipping disruptions and geopolitical uncertainty.
ECB officials fear sustained high energy costs could prompt businesses to pass expenses to consumers, further entrenching inflation. The remarks underscore the central bank’s challenge in balancing price stability against weakening economic activity.