ECB Executive Board member Isabel Schnabel reiterated the need to act early to prevent inflation from becoming entrenched, warning that second-round effects remain a key risk as price pressures persist across the Eurozone.
She noted that inflation is likely to remain above the ECB’s 2% target for an extended period, which could eventually feed through into wages and broader inflation. She stressed the importance of keeping inflation expectations firmly anchored.
Schnabel noted that financial markets appear to understand the ECB’s reaction function well and reiterated that the extent of policy tightening will depend on incoming economic data.
She also pointed out that Eurozone economy appears to be gaining further momentum, which could keep inflation higher for longer without some policy restraint. She also sounded worried about the natural gas situation as prices recently rose to the highest levels since March. Overall, European natural gas prices rose more than 130% in 2026.
Overall, Schnabel continues to be laser-focused on inflation, as positive growth momentum and elevated energy prices pose a risk to their 2% target. The tone of her remarks shouldn’t be surprising, given that she’s been one of the most hawkish members. The market is currently pricing 40 bps of tightening by year-end, with 95% probability of a rate hike at the upcoming meeting in September.
This article was written by Giuseppe Dellamotta at investinglive.com.