European Central Bank Governing Council member Martins Kazāks stated on Monday that if the inflation outlook does not show significant improvement, the ECB will need to adjust interest rates soon. In an interview with Swiss newspaper Neue Zürcher Zeitung, Kazāks noted that while the Iran conflict has pushed up energy prices, it is not very meaningful to predict the ECB's next move several weeks before the monetary policy meeting on June 11th. When asked if he agreed with market expectations for an ECB rate hike in June, he said, "However, if the situation does not improve significantly, an adjustment in interest rates will be unavoidable in the short term." Kazāks believes the ECB's decision to pause rate hikes in April was reasonable; but if energy prices do not fall quickly and significantly, monetary policy tightening should not be excessively delayed. Discussing the potential second-round inflationary effects from the Iran conflict, led by the United States, he stated that since the conflict began, there have not been extensive wage negotiations in Europe. The Austrian central bank governor pointed out, "It is clear that if the conflict drags on and energy prices remain high, the risk of second-round inflation effects will increase." He also mentioned that current demand is weak, and the inflation spike from this shock may differ from the surge seen in 2021-2022. When asked about the risk of Europe falling into stagflation, Kazāks acknowledged that the Middle East conflict has endangered the economic recovery in Germany and Austria while increasing inflation risks. He stated, "Even though the economy and labor market remain resilient, the possibility of a stagflation trend cannot be ruled out. The duration of the conflict will be a key determining factor."
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