Bundesbank President Joachim Nagel called for careful assessment ahead of the European Central Bank's interest rate meeting on July 22. Escalating U.S.-Iran military actions near the Strait of Hormuz have driven oil prices higher, adding volatility to the inflation outlook for the eurozone.
Nagel described the situation as highly uncertain due to the conflict and energy cost increases. He stressed the need for vigilance in monetary policy while remaining prepared to act as required. The ECB raised its deposit rate by 25 basis points to 2.25 percent last month, reversing prior easing that had brought the rate down from 3 percent.
Eurozone headline inflation eased to an estimated 2.8 percent in June despite higher energy costs. Core inflation remained at 2.4 percent. Brent crude futures exceeded $85 per barrel on Wednesday, up significantly from recent levels near $70.
Officials are mindful that excessive tightening could exacerbate economic weakness, following a 0.2 percent year-on-year contraction in the first quarter. Market expectations point to about a 20 percent probability of a rate increase next week, with further moves anticipated over coming months.
Other ECB members highlighted the importance of monitoring indirect effects from energy prices on broader inflation. Strategists noted that upcoming inflation data will be critical in evaluating current market pricing.
Nagel described the situation as highly uncertain due to the conflict and energy cost increases. He stressed the need for vigilance in monetary policy while remaining prepared to act as required. The ECB raised its deposit rate by 25 basis points to 2.25 percent last month, reversing prior easing that had brought the rate down from 3 percent.
Eurozone headline inflation eased to an estimated 2.8 percent in June despite higher energy costs. Core inflation remained at 2.4 percent. Brent crude futures exceeded $85 per barrel on Wednesday, up significantly from recent levels near $70.
Officials are mindful that excessive tightening could exacerbate economic weakness, following a 0.2 percent year-on-year contraction in the first quarter. Market expectations point to about a 20 percent probability of a rate increase next week, with further moves anticipated over coming months.
Other ECB members highlighted the importance of monitoring indirect effects from energy prices on broader inflation. Strategists noted that upcoming inflation data will be critical in evaluating current market pricing.