European Central Bank Governing Council member Martin Kocher indicated on Monday that the ECB might adjust interest rates in the near term if the inflation outlook does not show significant improvement. Speaking in an interview with Swiss media, Kocher stated that even if the situation in Iran pushes up energy prices, it is unnecessary to pre-judge the ECB's next move weeks ahead of the June 11 policy meeting. When asked whether he agreed with market expectations for an ECB rate hike in June, he replied: "But if the situation does not improve clearly, an adjustment of interest rates in the short term will be unavoidable." Kocher noted that the ECB's decision to pause rate hikes in April was understandable; however, monetary policy should not delay tightening for too long if energy prices do not fall quickly and significantly. Regarding potential second-round inflation effects from the US-Iran conflict, he mentioned that large-scale wage negotiations have not yet commenced in Europe since the outbreak of the conflict. The Austrian central bank governor stated clearly: "It is certain that if the conflict drags on and energy prices remain high, the risk of second-round inflation effects will increase." He also pointed out, however, that this shock may differ from the inflation surge of 2021-2022, as overall demand has already weakened. When asked about the risk of stagflation in Europe, Kocher indicated that the Middle East conflict has hampered economic recovery in Germany and Austria, while inflation risks are also rising. He said: "Although the economy and labor market remain resilient, the risk of stagflation cannot be ruled out. How long the conflict lasts will be a decisive factor."
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