FRANKFURT, March 11 (Reuters) - The European Central Bank will move quickly and decisively if more expensive fuel due to the Iran war feeds into durably higher euro zone inflation, ECB policymaker
ECB Ready to Act if Iran War Triggers Sustained Euro Zone Inflation Risks
ECB's Response to Inflation Risks Amid Iran Conflict
ECB Policymaker's Warning
FRANKFURT, March 11 (Reuters) - The European Central Bank will move quickly and decisively if more expensive fuel due to the Iran war feeds into durably higher euro zone inflation, ECB policymaker Joachim Nagel told Reuters.
Market Reactions and Central Bank Sentiment
Investor Expectations
Investors have flirted with the idea that central banks could be forced back into tightening, briefly pricing two ECB hikes on Monday before trimming those bets after U.S. President Donald Trump described the conflict as "very complete".
Bundesbank's Perspective
Nagel, who heads Germany's Bundesbank, said Trump's words offered "cause for hope" but the jump in energy prices had worsened the economic outlook and lifted inflation risks.
ECB's Vigilance and Potential Action
"We must be very vigilant," Nagel said in emailed comments. "If it becomes apparent that the current energy price increases will translate into broad consumer price inflation in the medium term, the Governing Council of the ECB will act decisively in a timely manner."
Upcoming ECB Meeting and Policy Outlook
The ECB is expected to hold rates at its meeting next week and outline scenarios for growth and inflation should the conflict drag on. Money markets now assign a little over a 50% chance of a year‑end hike to the 2% policy rate.
Wait-and-See Approach and Inflation Target
Like many of his colleagues, Nagel said he backed "a wait-and-see approach" but the latest turmoil had likely ended recent debate about inflation undershooting the ECB 2% target.
"The discussions about falling short of our inflation target are likely to be over for the time being," Nagel said.
"At this point in time, however, it is still too early to reliably assess the medium- to long-term consequences given the volatile situation."
Historical Context and Current Inflation Trends
The ECB was slow to react to an energy-fuelled inflation spike following Russia's invasion of Ukraine in 2022, which it had initially written off as transitory.
Inflation in the euro zone has since fallen and it has been hovering around 2% for over a year.
(Writing by Francesco Canepa; Editing by Andrew Cawthorne)
