ECB executive board member Schnabel said the ECB must raise rates further to
counter upside inflation risks from a protracted Middle East conflict and
stronger‑than‑expected euro‑area growth. She warned consumer prices could remain
above 2% for an extended period and that waiting for pass‑through to wages would
leave policymakers behind. At current rates inflation is unlikely to return to
target in the medium term, she said, so further tightening is necessary. With
demand proving resilient, early action is needed to prevent second‑round
effects; delayed action could require larger tightening later. Schnabel
identified fiscal loosening, higher defense spending and a global AI boom as
drivers of economic strength, and cautioned that non‑oil energy price pressures
are becoming more persistent. Low European gas stocks make the gas market
particularly concerning and, she said, the longer the conflict lasts the greater
the risk and intensity of indirect and second‑round inflation effects.
