ECB's Schnabel: ECB Needs Further Rate Hikes to Curb Inflation Risks

TechFlow reports, on August 26, Isabella Schnabel, an Executive Board Member of the European Central Bank, stated that due to the protracted Middle East conflict, combined with unexpectedly strong economic performance in the eurozone that poses upside risks to inflation, interest rates must be raised further. Consumer price growth may exceed 2% for "a prolonged period," and if policymakers wait until these impacts pass through to wages before acting, they will lag behind. She said, "Given current interest rates, it is unlikely that inflation will return to its target level in the medium term, so further policy tightening is necessary.

In particular, given the current resilience of aggregate demand, preventing second-round effects early on is crucial, as delayed action may necessitate more forceful tightening measures." She pointed out that fiscal policy, increased defense spending, and the global artificial intelligence boom are major drivers of the robust economic performance. Schnabel warned that energy price pressures, excluding oil, are becoming more persistent. Given low natural gas inventory levels in Europe, the trend in the natural gas market is particularly worrying, "posing substantial upside risks to inflation. The longer the conflict continues, the higher the risk and intensity of indirect effects and second-round effects will be." (Jin10)