European Central Bank (ECB) policymaker Joachim Nagel has cautioned that no immediate relief from the current energy-driven surge in inflation is expected, even following a preliminary agreement to reopen the crucial Strait of Hormuz. US and Iranian officials reportedly reached a pact overnight to end their conflict and restore access to the energy shipping gateway, a development that saw global oil prices fall. However, Nagel stressed on Monday that it would still take several months for oil supply to recover to its pre-war levels, dampening hopes for a swift reduction in price pressures across the Eurozone.
Nagel, a prominent voice within the central bank, reiterated his view that all policy options remain open for the ECB’s upcoming meeting on July 22-23. This includes both maintaining current interest rates or implementing further increases. The ECB recently raised its benchmark interest rates for the first time in almost three years in an effort to curb inflation. This move was a direct response to the unprecedented supply disruptions and escalating energy costs linked to the ongoing Iran war, which have significantly impacted the Eurozone economy.
Furthermore, Nagel indicated that another rise in inflation should be anticipated once government measures aimed at limiting energy price increases expire. These temporary interventions, such as the fuel price discount at the pump in Germany, played a notable role in moderating the Eurozone’s inflation rate. According to Nagel, such measures contributed to a 0.4 percentage point reduction in the inflation rate during May, highlighting the underlying inflationary pressures that are likely to resurface once the support is withdrawn. He concluded that no relief is in sight for the foreseeable future.
