By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Mārtiņš Kazāks said on Wednesday that the ECB may need to raise interest rates if the energy price shock linked to the war involving Iran risks pushing up inflation expectations.
In an interview with Latvian public broadcaster LSM, Kazāks, who heads Latvijas Banka, said that the conflict in the Middle East could “push prices up and push economic activity down.”
He noted that it was still impossible to assess the full impact, as the duration of the conflict and its effects on energy transportation and production capacity remain uncertain.
“If more [oil] plants are blown up, the impact will be more lasting and painful,” he added.
If the effects prove moderate, inflation could rise slightly, Kazāks said, adding that the consequences of the current conflict were unlikely to match the scale of the economic shock caused by Russia’s invasion of Ukraine.
“We're not really talking about that right now. Economic growth, which was gradually gaining momentum, will slow down again, but it's not about minuses, but lower pluses,” he said.
Kazāks also warned that food inflation could be affected indirectly, noting that the price of mineral fertilizers might increase, which could make food more expensive.
“If there are concerns that this supply shock, the rise in fuel prices due to geopolitical reasons, will start to take root and also raise inflation expectations, then intervention by raising rates will be necessary,” he said.
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