Schroders: ECB steady as stagflation clouds gather
Commenting on today's interest rate decision from the European Central Bank (ECB), Irene Lauro, Senior Economist – Europe and Climate at Schroders, said:
"The ECB kept rates on hold at 2% today, as the surge in oil and gas prices since the start of the Iran conflict injects fresh uncertainty into an outlook that had finally begun to brighten.
"Higher energy costs inevitably push headline inflation higher, but the policy dilemma hinges on second round effects - whether wage and core inflation dynamics reaccelerate or growth softens enough to keep medium term inflation anchored.
“Negative risks to growth have intensified as disruption to Qatari liquified natural gas leaves the Eurozone exposed at a seasonal low in gas storage. A looming scramble for gas, with Europe and Asia competing head to head, risks keeping energy prices elevated for longer and further undermining growth.
"Markets are currently assuming a temporary shock. If that proves correct, the ECB can look through short lived volatility in energy inflation. But that is a big assumption, and the ECB is likely to remain firmly data dependent to preserve flexibility in such an uncertain environment.”
