European Central Bank Governing Council member Gabriel Makhlouf stated that preliminary assessments of the eurozone's economic conditions on Thursday, combined with weakening consumer and business confidence, indicate the economy is facing "short-term headwinds."
The Central Bank of Ireland governor said in a blog post on Friday, "While the latest information is broadly consistent with our previous assessment of the inflation outlook, both upside risks to inflation and downside risks to economic growth have intensified."
Makhlouf expressed concern about the possibility of energy prices remaining elevated for an extended period, given the uncertainty over when the conflict involving Iran will end and when the Strait of Hormuz will reopen. The Middle East conflict is now in its third month, while official data released on Thursday showed economic growth slowed in the first quarter, which only covered the first month after the outbreak of hostilities.
His remarks came a day after ECB President Christine Lagarde hinted that interest rate hikes would be considered at the next meeting, largely echoing concerns voiced by several other ECB officials on Friday.
Bundesbank President Joachim Nagel said interest rates may need to rise if the outlook does not improve. Estonia's Madis Muller also raised similar concerns, while Austrian Central Bank Governor Martin Kocher called for more time to assess risks facing the economy.
Makhlouf noted that the current situation reminds him of the "non-linear transmission of supply chain pressures" following the COVID-19 pandemic and the outbreak of the Russia-Ukraine conflict, which could lead to more persistent inflation.
He said this impact is already visible in the prices of "energy-intensive commodities," pointing to significant increases in the prices of helium, sulfur, and fertilizers since the conflict began. Makhlouf added, "This is creating upward pressure on producer prices downstream in sectors such as semiconductors, chemicals, and food production."
Comments