By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Pierre Wunsch said Tuesday that he would not exclude an April interest-rate hike and suggested the ECB would likely have to raise rates by June if the Middle East-driven energy shock had not subsided.

Wunsch, who heads the National Bank of Belgium, told the Wall Street Journal’s What’s News podcast that "[i]n a way, hiking 25bp wouldn't change much," he said. "Inflation is already at 2.5%. We're not going to be able to control the direct effects of the crisis. We need to move at some point to control the indirect effects."

"So, the issue is more of an issue of communication," he continued. "What would you signal by hiking in April or in June? The way I feel comfortable putting it is if this is not done by June, I think we're going to have to hike, but I don't want to exclude a hike in April."

If the shock persists, the ECB may have to dampen demand, he said. "So, just giving subsidies for people to be able to keep buying gas and oil without feeling too much of an impact would not be the right policy because we need some demand destruction. And we've been able to reduce, for instance, natural gas consumption during the gas crisis after the war in Ukraine by 20%. But that was on the basis also of administrative measures like reducing the temperatures in buildings. So, we need collectively to reduce our demand because there is just less gas and oil."

Wunsch also said the ECB should keep in mind its delayed response to the last inflation surge.

"And of course, last time we were a little bit late, team transitory, before acting," he said. "So, this is something probably we have to draw the lessons from."

Still, supply bottlenecks were not currently at the level associated with the last inflation surge, he said.

"So, we're a little bit less exposed now on the inflation front," he said. "But at the same time, after a long period of low inflation, economic agents, firms and workers were a little bit taken by surprise. So, it took some time before people would react to the shock and you started having the second round effects. So, I guess now the question is, okay, the shock might be a little bit less important from a European perspective than it was back then. But at the same time, it might be that firms say, 'Okay, we don't want to be the last one to raise our prices.' They might react more quickly."

Moreover, he said, there wasn't as much fiscal room this time to cushion the shock, he said, "especially in Belgium and France."

"One of the concerns is that, and we see that in Belgium, if political parties want to do it as they did before and basically try to absorb the shock by increasing public expenditure, this might morph into potentially some tensions on the fiscal front," he cautioned.

"You might see some downgrades from rating agencies down the line," he continued. "So, far, I think we can deal with this crisis. I would say if we are not at the end of it by June, we're probably going to have to hike rates, but if it would morph in some form of financial crisis or tension in financial systems, then it truly becomes much more difficult to manage."