ECB’s Kazimir Says Rates Must Be Lifted More to Tackle Inflation

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(Bloomberg) — Inflation spreading through the economy will force the European Central Bank to raise interest rates further, according to Governing Council member Peter Kazimir.

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The Slovak central-bank chief doesn’t see price pressures easing without intervention, and says that even a US-Iran peace deal won’t return inflation to 2% overnight. Despite cooling, the economy remains resilient, giving officials space to act, he said.

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“Our mission hasn’t been complete yet,” Kazimir said Friday in an interview in London. “It’s too early to discuss whether policy needs to become restrictive. But I definitely wouldn’t exclude it considering how price pressures are spreading through the economy.”

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The remarks add to a growing chorus of warnings from officials that the surge in energy costs triggered by the Middle East conflict is driving up a broader range of prices. Inflation in the euro zone hit 3.2% in May, with underlying pressures also ticking higher.

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The ECB boosted its deposit rate by a quarter-point to 2.25% on Thursday, becoming the first major central bank to react to the war’s economic consequences. People familiar with the Governing Council’s thinking said another move could come as early as July.

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Kazimir declined to be drawn on whether a decision at that time is likely, or if September is the more obvious option considering more data and updated forecasts will offer a clearer view on the 21-nation bloc’s economic health then.

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“The June inflation figures – the core rate particularly – might be decisive,” he said. “But there’s no agreement on July, and of course in September, we will get new projections again. It’s important to decide meeting by meeting.”

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The ECB’s June outlook showed core inflation, which excludes energy and food, remaining higher than predicted three months ago and above the central bank’s target at least through 2028. The prospects for growth were a touch weaker for this year and next.

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“The inflation outlook has clearly worsened since March,” Kazimir said. “Energy price pressures are seeping into the economy. We see it in core inflation and this is something that’s dangerous.”

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He added that the latest forecasts assume three hikes and pointed out that underlying price pressures are still above target in the medium term. “Our decisions are driven by our commitment to that target,” he said.

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While wages are “under control” and policymakers haven’t yet identified larger ripple effects, he said “they’re lurking and they will come.” 

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Kazimir argued that energy costs will remain high much longer than the ECB would like even with a peace deal because production capacity that was destroyed will take some time to be restored. 

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“There are some clear signs of pipeline pressures building,” he said, adding that the ECB’s inflation forecasts “rely significantly on positive base effects — that’s risky.”