Schnabel Warns Eurozone Inflation Risks Persist Amid Strong Growth
European Central Bank (ECB) Executive Board member Isabel Schnabel warned that inflation risks persist in the eurozone, driven by ongoing Middle East conflicts and strong economic growth. Despite better-than-expected data, including a 0.4% quarterly growth rate in the eurozone, Schnabel emphasized that further interest rate hikes are necessary to curb second-round effects on inflation.
Schnabel attributed the eurozone's resilience to fiscal policy support, accelerated defense spending, and the global artificial intelligence boom. However, she expressed concern over energy price pressures, citing sticky natural gas prices as a particular worry due to low European gas storage levels.
The ECB has largely priced in an expectation of a 25-basis-point rate hike next month, which would raise the deposit facility rate to 2.5%. Investors anticipate another rate increase by December 2026. Schnabel noted that markets seem to understand the ECB's reaction function accurately but offered no specific guidance on the final magnitude of rate hikes.