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ECB · Inflation · Interest Rates · Iran War
ECB President Christine Lagarde welcomed a U.S.-Iran ceasefire and Strait of Hormuz reopening, which sent oil prices falling and curbed investor bets on further ECB rate hikes, but fellow policymaker Joachim Nagel cautioned against immediate relief for high euro zone inflation.
The preliminary pact between U.S. and Iranian officials to end their war and reopen the Strait of Hormuz, a critical energy shipment gateway, caused financial investors to pare back expectations for ECB rate hikes from two to just one additional increase. Lagarde, speaking to France Culture radio, welcomed the news, stating it is "good news" if confirmed.
However, Bundesbank head Joachim Nagel, a member of the ECB Governing Council, expressed caution in Frankfurt, noting that while markets anticipate a lasting solution, it will take months to restore oil supply to pre-war levels even if the Strait reopens soon. Nagel stated "no relief is in sight for the foreseeable future" regarding inflation, arguing it will remain elevated even in the ECB's "mild" scenario of faster energy price declines.
He also warned of another inflation increase when government energy price limiting measures, like Germany's fuel discount which dampened May's inflation by 0.4 percentage points, expire. Nagel reaffirmed that all policy options, including holding or increasing rates, remain open for the July 22-23 meeting, a sentiment echoed by Lagarde regarding the ongoing uranium enrichment debate.
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