Schnabel signals further rate hikes to curb inflation

Schnabel acknowledged that the Middle East ceasefire and falling oil prices are good news for the global economy, potentially providing renewed momentum.

However, she cautioned that energy prices remain measurably higher than before the conflict, especially for medium-term deliveries.

Uncertainty persists regarding the durability of peace, the normalisation of supply chains, and the need to replenish depleted strategic oil reserves and low gas storage levels in Europe.

These factors keep energy prices elevated.

Furthermore, May inflation data showed the energy price shock broadening to non-energy goods and services, increasing the likelihood of second-round effects, particularly stronger wage growth.

The recent rate hike was therefore necessary to prevent these effects and ensure inflation returns to target, despite the improved short-term outlook.

The economy has shown resilience despite the energy price shock, partly due to the AI boom and government spending.

Schnabel noted that governments, particularly in Germany, are investing heavily in infrastructure and defense, which can fuel demand.

She stressed that if fiscal impulses are inflationary, monetary policy must counteract them.

Fiscal measures should be temporary, distort prices minimally, and target genuine support needs.

Regarding Germany, Schnabel welcomed special funds for infrastructure, climate neutrality, and defense spending exemptions.

However, she highlighted the critical need for efficient implementation and accompanying reforms, as Germany's growth has stagnated since 2019 due to structural factors like demographics, declining competitiveness, and an innovation gap.