European Central Bank board member Isabel Schnabel — widely known as the ECB's hawk — said the conflict in the Middle East is likely to push inflation higher in the eurozone. The warning, delivered during a speech in Frankfurt, adds a fresh dose of uncertainty to the central bank's already delicate battle against rising prices.
Why the conflict matters for prices
Muller pointed to disruptions in energy markets and supply chains as the main channels through the region's instability feeds into consumer costs. Oil prices have already climbed since hostilities escalated, and any sustained spike would ripple through transport, manufacturing, and heating bills across the 20-nation currency bloc. The ECB had been watching inflation ease from double-digit peaks, but Muller's remarks suggest that progress may now stall — or reverse.
The central bank has held interest rates at a record high for months, waiting for inflation to fall convincingly toward its 2% target. Muller's forecast of an acceleration complicates that timeline. It doesn't rule out rate cuts later this year, but it makes them less likely in the near term. Traders reacted by trimming bets on a June reduction, though no formal decision has been made.
A broader global concern
Muller is not alone in sounding the alarm. Central bankers from the Federal Reserve to the Bank of England have flagged geopolitical risk as a wild card for price stability. For the ECB, the Middle East conflict is especially troublesome because Europe relies heavily on imported energy. Even a temporary jump in fuel costs could feed into wages and services prices, making inflation stickier.
The ECB's next policy meeting is scheduled for April 11. Investors will be listening closely for any shift in language from President Christine Lagarde and other rate-setters. Muller's comments have already set the stage for a more cautious tone.
