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(Bloomberg) — European Central Bank Executive Board member Isabel Schnabel warned that price pressures could turn out stronger than anticipated even as a US-Iran peace deal reopens the Strait of Hormuz.
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In a presentation for the Petersberger summer dialogue 2026 in Koenigswinter, Germany, Schnabel said Saturday that “food, goods and services inflation are facing upside risks,” adding that the “energy price shock can feed into broader inflationary dynamics.”
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The slides back Schnabel’s comments in a recent interview that from today’s perspective more rate hikes are needed to bring inflation back to 2%. While she welcomed the recent drop in energy prices due to the prospect of an US-Iran peace deal, she cautioned that the ceasefire is no reason to let the guard down.
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“Uncertainty remains high, but announced peace deal makes negative scenarios less likely,” she said. Still, oil prices are “expected to stay persistently higher as Strait of Hormuz opens only gradually.”
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Schnabel, who’s seen as the most hawkish Governing Council member, reiterated that the “ECB is expected to raise rates further to bring inflation back to 2% over medium term.”
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“Consumer inflation expectations have increased,” the German official said. Still, there’s “no sign of wage pressures yet.”
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Euro-area inflation likely slowed in June to 3% from 3.2%, according to a Bloomberg survey, with data due next week. Analysts expect core price growth, excluding energy and food, to stay at 2.6%, significantly above the ECB’s target. Earlier this month, officials concluded that they can no longer look through the shock and raised rates.
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Schnabel’s presentation also said:
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- “Energy shock hit euro area particularly hard but less than in previous oil price shocks.”
- “Staff projections see lower euro area growth and higher inflation due to Iran war.”
- “Higher energy costs are weighing on confidence and private consumption.”
- “Higher energy prices have knock-on effects, reinforced by supply chain pressures.”
- “Producers pass through part of higher input prices, especially in manufacturing.”
- “Growth is supported by government investment and global AI boom.”
- “Labour market remains resilient with cooling labour demand but tight supply.”
- “Rising financial stability risks due to stretched risk asset valuations and higher leverage.”
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