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A member of the European Central Bank’s Governing Council said the ECB may need to adjust interest rates soon if the inflation outlook does not improve meaningfully.
In an interview with the Swiss Neue Zürcher Zeitung, Kocher said that if inflation does not clearly pick up, a near-term rate adjustment would be unavoidable, even as markets have discussed the possibility of an ECB rate increase in June.
Kocher acknowledged that the ECB’s decision to pause rate hikes in April has some basis. However, he cautioned that the central bank should not delay further tightening for too long if energy prices do not fall back quickly and materially.
On the potential indirect effects of the US–Iran conflict, Kocher said that, to date, there have not been many wage negotiations in Europe since the conflict began.
He added that as the conflict continues and energy prices remain high, the risk of indirect effects would rise significantly. At the same time, Kocher said the impact this time around may differ from the inflation surge seen in 2021–2022, citing weaker consumer demand today.
Asked about the risk of Europe slipping into stagflation, Kocher warned that the pace of economic recovery in Germany and Austria is threatened by the Middle East conflict, while inflation risks appear to be rising.
He said that although the economy and labor market remain resilient, a stagflation risk cannot be ruled out. Kocher noted that the end of the conflict would be a decisive factor for the region’s economic outlook.
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