ECB’s Schnabel: Must Remain “Relaxed” Unless “Big Shock” Triggers Sustained Deviation

12 November 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Executive Board member Isabel Schnabel said on Wednesday that the ECB should remain “relaxed” unless a “big shock” were to trigger a sustained deviation from its medium-term inflation goal.

In a panel discussion at the BNP Paribas' 9th annual Global Markets Conference in London, Schnabel said that with spot and projected euro area inflation close to 2%, a more resilient-than-expected economy and a very robust labor market, the ECB was “in a good place.”

Asked whether the impact of trade tensions had been milder than expected, Schnabel agreed, noting a “pretty big difference” between what occurred and what the ECB had initially forecast, pointing to significant frontloading earlier in the year.

“One thing that happens, and that is disturbing a bit the data, is that we have this massive frontloading,” she said. “Then we didn't see a complete reversal of the frontloading later, but we actually did see that there is a positive underlying momentum in the euro area economy.”

Domestic demand had offset weaker exports, which she described as a “very important” development. Uncertainty had fallen markedly and was now back to levels seen at the start of the year, she added.

Schnabel said geopolitical fragmentation was already under way and was “rather inflationary than disinflationary.” One recent example of supply chain disruption, she said, were the latest developments concerning rare earths.

“But there are also other pockets of upside risks to inflation,” she said, highlighting food inflation, which remained “pretty strong” and continued to weigh heavily on households’ inflation expectations.

While wage growth was moderating, it was doing so more slowly than anticipated, posing a risk that the decline could persist, she noted. Services inflation was also running higher than forecast, and the earlier “stickiness” remained.

Regarding the increase in German fiscal spending, Schnabel said the ECB expected its impact on inflation to be “relatively small,” though she described those estimates as “quite conservative.”

Downside risks such as the rerouting of Chinese goods had not yet materialized, she said, noting instead that exports from China to Europe were declining. She also pointed to the appreciation of the exchange rate as a potential downside risk, but said that it had recently stabilized.

“So overall, this leads me to the conclusion that if anything risks are rather tilted a little bit to the upside,” she said.

Asked about the projected undershoot of inflation, Schnabel attributed it mainly to volatility and base effects in energy prices, stressing that headline inflation was still expected to return to 2% by the end of the projection horizon.

“I think the main focus actually should be on underlying inflation … there we have a much smaller undershoot,” she said, observing that it was expected to converge to 2% in the medium term.

She argued that the economic recovery and the expected fiscal impulse should generate mild upward, rather than downward, price pressures.

“I'm not panicking about a huge surge in inflation, but the broad macro narrative is one where you do not see these sustained disinflationary pressures, this is why I am not concerned,” she said, adding that the ECB should tolerate small deviations like the one currently expected.

Asked what this meant for interest rates, Schnabel said the world had become more volatile, meaning the ECB had to focus on “the big shocks” and become less data-dependent.

When the ECB was cutting rates while inflation was still declining, “it was critically important to see whether our assumptions underlying this disinflationary process were actually confirmed by the incoming data,” she said, adding that this had “changed a little bit.”

The ECB, she said, should remain firmly focused on the medium term and act only if a shock were large enough to threaten the inflation target or the anchoring of inflation expectations.

“But if there's no such big shock, I would be rather relaxed,” she said.