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(Bloomberg) — The European Central Bank must be prepared for inflation that’s been unleashed by the conflict in the Middle East but is yet to be felt, according to Chief Economist Philip Lane.
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Despite the US and Iran announcing an agreement to reopen the Strait of Hormuz, the trajectory for oil prices hasn’t simply returned to its pre-crisis path, the Irish official told a Reuters event on Tuesday.
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“Four months of elevated energy prices means we can see in the pipeline of inflation coming up that inflation will be above 3%,” he said. “There’s going to be indirect effects on food, on goods, on services this year and into next year.”
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The ECB raised interest rates last week for the first time since 2023, warning that war-driven inflation is widening beyond just energy — a message repeated on Monday by President Christine Lagarde. Investors and economists still expect at least one more quarter-point hike, to 2.5%, with price gains to stay well above the 2% goal for some time.
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Even if shipping resumes, Bundesbank President Joachim Nagel said Monday that it will take months for oil supplies to return to normal, with high energy costs likely to be increasingly reflected in consumer prices.
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His Spanish counterpart Jose Luis Escriva concurred, saying complications over energy flows are likely to persist as production capacity needs to be restored.
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Lane said the cost of a barrel of oil isn’t likely to fall much from its current level of $80 and $81, describing the forward curve as “basically fairly horizontal for the next couple of years.”
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“We don’t have a big reversion to the pre-war level under the market pricing,” he said. “But neither do we have the much higher prices that were in our adverse and severe scenarios.”
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