ECB’s Wunsch signals downside inflation risks ahead of July meeting, reducing urgency for further rate increases.
European Central Bank Governing Council member Pierre Wunsch stated that stronger second-round effects, such as sustained wage growth or broader price pass-through, would be required to justify additional tightening. He noted that inflation surprises before the July meeting are now more likely to be on the downside due to falling energy prices.
Wunsch added that oil prices could drop below pre-war levels if geopolitical tensions ease, with most lost production capacity potentially restored within three months. The ECB’s June rate hike was seen as a preemptive move against energy-driven inflation risks, but those concerns have diminished as Brent crude falls below the bank’s forecasts.
The comments suggest one rate hike may suffice if the shock fades before significant second-round effects materialize, though further action would depend on persistence in wage and price pressures.