Patsalides Warns Middle East Conflict Could Fuel European Inflation

Central Bank of Cyprus Governor Christodoulos Patsalides has warned that the ongoing conflict in the Middle East could exacerbate inflationary pressures. Speaking about the European Central Bank's (ECB) decision to maintain key interest rates, Patsalides said the effects of the recent energy shock remain contained for now.

The ECB left its key interest rates unchanged earlier this week, citing ongoing uncertainty over the economic outlook and potential impacts from higher energy prices. Patsalides, a member of the ECB Governing Council, noted that inflation risks are currently skewed to the upside, while growth risks remain on the downside.

Elevated energy prices are increasing production costs, according to Patsalides, who warned that a prolonged Middle East conflict could broaden and make these pressures more persistent. Energy prices continue to be highly volatile but remain broadly consistent with baseline projections for June Eurosystem staff projections.