The European Central Bank may need to raise interest rates to prevent higher fuel costs from the Iran war from spreading to wages and broader prices, ECB Chief Economist Philip Lane said on Wednesday.
Lane outlined the rationale for an ECB rate hike in June, which some policymakers view as the first of multiple increases, despite the negative impact on economic growth for the energy-importing euro zone.
"The optimal response might be smaller for an exogenous supply disruption than for a demand shock but there are several reasons why an active response may be required," Lane told an audience in London.
Lane noted that the Iran conflict follows a period of high inflation after the COVID-19 pandemic and Russia’s invasion of Ukraine, which means firms and consumers are likely more sensitive to price changes.
Source: Investing