ECB's Schnabel warns inflation may stay strong, sees more rate hikes

European Central Bank (ECB) Executive Board member Isabel Schnabel warned on June 27 that inflationary pressures could prove stronger than anticipated, even if the Strait of Hormuz reopens following a U.S.-Iran peace agreement. Schnabel stated that there are upside risks to food, commodity, and services inflation, adding that the shock from energy prices could spill over into broader sectors. While welcoming the recent decline in energy prices on the prospect of a peace deal, she emphasized that a ceasefire should not be a reason to lower the guard against inflation. Schnabel said that although uncertainty remains high, the announced peace agreement has reduced the likelihood of a negative scenario. However, she added that oil prices are expected to remain high because the Strait of Hormuz will only be reopened in phases. Schnabel, considered a prominent hawk on the ECB's Governing Council, reiterated her belief that the central bank will likely implement further interest rate hikes to return inflation to its 2% target in the medium term. She noted that consumer inflation expectations have already risen, but signs of wage pressure have not yet emerged.