ECB's Schnabel: Peace Deal Does Not Alter Upside Inflation Risks
Alina Collins
ECB Executive Board member Isabel Schnabel warned that even as a US-Iran peace deal pushes oil prices lower, upside risks persist across food, goods, and services inflation — the rate-hiking cycle is not over, and markets may still be underpricing the eurozone rate path.
Oil prices fell — why isn't she reassured?
Schnabel welcomed the oil-price decline driven by the US-Iran peace outlook, but stressed that a ceasefire is no reason to let down the guard.
The Strait of Hormuz — the chokepoint for roughly a fifth of global oil shipments — is reopening only gradually; oil prices are expected to remain elevated.
This means → the peace deal lowers the probability of the worst-case scenario but does not remove the upward push from energy prices on inflation.
Where exactly is inflation stuck?
Schnabel flagged three inflation lines under simultaneous pressure: food, goods, and services, with energy-price shocks transmitting into broader inflation dynamics.
A Bloomberg survey projects eurozone June inflation may slow from 3.2% to 3%, but core inflation — price changes stripped of energy and food — is expected to hold at 2.6%, well above the ECB's 2% target.
In plain terms = the headline number is falling, but strip out the most volatile items and underlying prices remain stubbornly high.
How is the energy shock dragging on growth?
ECB staff projections show the Iran conflict has lowered eurozone growth and raised inflation forecasts, though the shock is milder than previous oil-price crises.
Higher energy costs are weighing on confidence and private consumption; manufacturers — especially in heavy industry — are passing on part of the higher input costs, with supply-chain pressure amplifying the effect.
This reflects a dynamic that goes beyond the oil price itself — the shock travels link by link along the cost chain and ultimately shows up in end-product prices.
Is there any good news?
Schnabel cited two supports: government investment and the global AI boom are underpinning growth.
The labour market remains resilient; consumer inflation expectations have risen, but there are no signs of wage pressure so far.
She cautioned, however, that elevated risk-asset valuations and rising leverage are pushing up financial-stability risks — cooling demand coexists with tight supply.
Will rate hikes continue?
Schnabel is widely seen as the most hawkish member of the ECB Governing Council; she reiterated that the ECB "expects to raise rates further to bring inflation back to the 2% target over the medium term."
This means → even as geopolitical risks ease, the hiking cycle is not over, and market pricing of the eurozone rate path still faces upward revision.
Put simply = don't count on rates turning around quickly — as long as core inflation stays well above 2%, the ECB will keep its foot on the brake.
Content is for reference only, not financial advice.