The European Central Bank will not let its guard down while inflation stays high, board member Isabel Schnabel said today in Luxembourg.
Prices in the eurozone are rising at 3.2% a year, and September could see that speed up to 3.6%. The bank wants inflation at 2%, but its own September forecasts show it still at 2.1% in 2028.
Inflation risks have not gone away, Schnabel warned. Since those forecasts were made, oil and natural gas prices have climbed close to the levels seen in the bank's worst-case scenario, meaning inflation could miss its target by more, and for longer.
Households and firms are paying high energy bills because of the war in Iran, she said, and that raises the risk that wages and prices push each other up, keeping inflation higher for longer. The bank wants to stop the energy shock from spreading into other prices across the economy.
"Central banks cannot wait until these effects actually show up," Schnabel said. If policymakers wait for firms to raise prices and for wage talks to wrap up, they will react too late.
"We reacted in time when the outlook for inflation worsened at the start of the conflict in the Middle East," she added.
The next few months will tell a lot, Schnabel said. It will become clear how much of the pressure from earlier stages of production and supply chains feeds through into core inflation and into what people expect inflation to do. It will also show how the economy is handling the rate hikes already made.
In September, the ECB raised its main interest rate to 2.50%, its second hike this year. Markets expect one more before the year ends.
Schnabel is leaving her post early. She starts a new job at the International Monetary Fund at the start of January.