An ECB executive board member says the central bank cannot wait for high energy prices to spread through wages and broader prices before acting. Her warning comes hours after Eurozone inflation data showed faster-than-expected price growth in Spain, Italy, Germany and France.
Schnabel calls for pre-emptive action
Isabel Schnabel, a member of the European Central Bank's executive board, said rate-setters cannot wait for indirect and second-round effects from surging fuel prices to show up before acting further to tame inflation. Speaking in Luxembourg, she argued that waiting for firms to visibly raise prices and for wage talks to conclude would mean acting too late.
She also warned that the jump in energy prices since mid-August implies a larger and more persistent deviation of inflation from the ECB's 2% target than the bank's latest baseline forecasts assumed. Under that scenario, headline inflation is projected to fall back to 2% in Q4 2027.
Eurozone inflation accelerates across major economies
Schnabel spoke just hours after data showed inflation rising faster than expected in the Eurozone's four biggest economies this month. In Spain, the annual rate jumped to 5% from 4.6% in August, while Italy's rate rose by nearly a full percentage point to 4.2%.
Germany's consumer prices increased 3.3% this month, up from 2.9% in August. France's annual inflation also rose faster than anticipated, to 3.4%.
Schnabel, who leaves the ECB in January to join the IMF, said higher energy prices are not the only source of inflation — surging tech investment is contributing too, as semiconductor prices rise on AI-related demand. According to Schnabel: "financial conditions are not yet restrictive", a comment that could be read as an implicit call for further tightening.
Traders price further rate moves
Before the speech, traders had fully priced in another quarter-point increase in Eurozone borrowing costs — the third this year — to 2.75% by December, with a 40% probability of a move at the ECB's next meeting in late October. For 2027, traders were pricing in almost three further quarter-point increases.
Oil prices surged back above $100 a barrel in the first half of the month, while European natural gas prices recently hit their highest level since the 2022 crisis triggered by Russia's invasion of Ukraine. European diesel prices jumped last week after US President Donald Trump threatened to cut off exports.
Eurostat will publish its flash inflation estimate for the Eurozone on Friday. Economists polled by Reuters expect an annual rate of 3.6%, up 0.4 percentage points from August and the highest in three years.
Source: Financial Times
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