ECB’s Escrivá: Must React if Trade Tensions Are Deflationary, But Will Take Time to Find Out

9 April 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member José Luis Escrivá said on Wednesday that it would take some time for the ECB to find out if the net effect of trade tensions would be deflationary, in which case the central bank should react accordingly.

In an interview with Spanish TV La 1, Escrivá, who heads the Banco de España, said that ‘inflation has progressively declined to 2% and data in March, February and January have confirmed that elements that were still generating doubts are converging to 2%.’

The ECB’s baseline scenario had been materialising until March, which allowed the institution to normalise monetary policy ‘to a non-restrictive environment’, he said.

Recent trade tensions could generate upward pressures on inflation in the short term, he said, but the ECB only focussed on the medium-term impact.

‘That [short-term inflationary pressure] is not important in our decision-making process, what’s important is its implications for inflation in two years’ time, in the medium term’, he said. ‘This is where we are seeing elements in both directions.’

Inflation could rise due to a potential disruption of global supply chains and looser fiscal policy in Europe, according to Escrivá.

‘There are also downside risks’, he said. ‘Weaker demand, consumption and investment, but also lower confidence and markets in a very tense situation wouldn’t be inflationary, but would in fact exert downward pressure on prices.’

The ECB would have to find out what the net effect on inflation was, he said, which was not so evident.

‘If we were to conclude that the impact on confidence is very persistent, which will take some time to find out, and that the situation is eventually going to generate more downward than upward pressure on prices, we would have to take appropriate decisions’, he said.

Given recent developments, the Banco de España would have to revise its projections for Spanish economic growth to the downside, according to Escrivá, who said he was unable to determine the extent of the revision.