FRANKFURT, April 20 (Reuters) – The economic implications of the war in Iran have yet to reach levels corresponding to the European Central Bank’s adverse scenario, and the bank needs more information before drawing firm policy conclusions, ECB President Christine Lagarde said.
Energy prices soared last month as a result of the war, but policymakers so far say they have no firm evidence at hand this is leading to second-round price impacts, a key condition for raising interest rates.
Comments from Lagarde, coming less than two weeks before the April 30 policy meeting, will likely reinforce market bets that even if a rate hike may become necessary, April is too early for such a move.
“So far, we have not seen energy prices rise far enough to push us squarely into our adverse scenario,” Lagarde said in a speech in Berlin on Monday.
“This … uncertainty about the duration of the shock and the breadth of pass-through argues for gathering more information before drawing firm conclusions for our monetary policy,” she added.
While oil spot and futures prices are above what the bank assumed in its baseline projections, natural gas prices are below it, partly because some Asian gas buyers are switching to coal, Lagarde added.
The ECB is now facing two opposing forces. Firms and households vividly remember the 2022 inflation shock, so they may start adjusting wage and price demands more quickly due to the memory effect of the last shock.
But higher energy prices also weigh on disposable incomes, limiting firms’ ability to raise prices.
Lagarde added that there have been limited signs of supply chain disruptions so far – both globally and in the euro zone.
“But local tensions are visible: jet fuel prices have roughly doubled since the outbreak of the conflict, and rationing has been imposed at some individual airports since early April,” she said.
(Reporting by Balazs KoranyiEditing by Peter Graff)
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