By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf said on Wednesday that the uncertainty created by the Middle East conflict warranted caution and that the ECB should remain on a meeting-by-meeting footing.

Makhlouf, who heads the Central Bank of Ireland, said in a speech at a closed-door event open exclusively to paying private bankers that energy prices were now sitting between the baseline and adverse scenarios in the ECB staff projections, while risks were on the upside for inflation and on the downside for growth, especially through 2026.

Makhlouf said the Governing Council was “not on a pre-determined path” and had adopted “a data-dependent and meeting-by-meeting approach.”

He said scenarios should not be treated as forecasts, but rather as internally consistent illustrations of how the outlook could evolve if energy prices moved differently from the baseline.

“For me, it’s not about choosing a preferred scenario but ensuring robustness,” Makhlouf said, adding that policymakers had to make sure their approach performed well across potential outcomes.

Makhlouf also said the euro area was starting from a different position than in early 2022, with inflation around the 2% target for much of the past year, policy rates in the neutral range, and longer-term inflation expectations well anchored.

He said the labor market had also cooled markedly since the earlier inflation episode, even as policymakers needed to monitor whether temporary price pressures were becoming persistent.

Among the indicators he said he was watching were energy commodity prices, gas storage, retail energy prices, measures of price breadth and dispersion, producer price pressures, transportation costs, wage trackers, and inflation expectations.

At the same time, Makhlouf said it was still too early to expect indirect and second-round effects to show up clearly in the data.

“We held rates at 2% because the outlook is genuinely uncertain,” he said. “But we are learning to live with uncertainty and to not be paralyzed by it. We have a framework for monitoring how the outlook evolves and a credible commitment to act when data clarifies the direction of travel. And as I said, we are not pre-committing to a path and not ruling options in or out.”

He continued: “The use of scenarios during exceptionally uncertain times is about ensuring we’re ready to respond in a timely manner as the situation develops. The path ahead is uncertain, but the commitment to price stability is not.”