By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Friday said he was concerned about a higher-for-longer energy price scenario and would closely monitor indirect effects on inflation from the Middle East war.

Makhlouf, who heads the Central Bank of Ireland, said in a blog post on his institution’s website that the lack of a clear timeline for the end of the conflict and the reopening of the Strait of Hormuz made the energy outlook highly uncertain.

“I am concerned about a higher-for-longer energy price scenario,” he said.

The longer the conflict continued, the greater the potential for higher commodity prices and supply disruptions to take hold, not only in energy but across supply chains, Makhlouf said.

This was reminiscent of the non-linear propagation of supply-chain stress seen after Covid and Russia’s invasion of Ukraine, which could give rise to more persistent inflation, he said.

Oil prices were fluctuating in a wide range between the ECB staff’s March baseline, which assumed a peak of $90 in 2Q 2026 before a gradual decline, and the adverse scenario of $119 per barrel, Makhlouf said.

Gas prices had remained just below the bottom of the March baseline-adverse range of €50-87/MWh at the time of writing, he said.

Prices for energy-intensive commodities produced mainly in the Gulf region had already risen sharply since the start of the war, including helium, sulfur and fertilizers, he said.

This was putting upward pressure on downstream producer prices in semiconductors, chemicals and food production, according to Makhlouf.

However, the pass-through from producer prices to consumer prices was not always one-for-one and depended on the demand environment facing firms, he said.

Yesterday’s initial estimate of Eurozone GDP, showing growth slowing to 0.1% in 1Q, combined with weaker consumer and business confidence, pointed to near-term growth headwinds, he said.

The initial estimate of 3% Eurozone inflation in April was driven almost entirely by energy prices, which rose nearly 11% on the year and 3% in April alone, he said.

Core inflation, excluding energy and food, was more or less unchanged in April, while Irish headline inflation was unchanged from March at 3.6%, he said.

The incoming information had been broadly consistent with the ECB’s previous assessment of the inflation outlook, but upside inflation risks and downside growth risks had intensified, Makhlouf said.

“The longer energy prices remain elevated the greater the risk of more broad-based and persistent inflation, and the more entrenched the drag on growth becomes,” he said.

The ECB would have a clearer picture of underlying inflation momentum in the months ahead as more data came in, he said.

“We have seen the direct effects of this shock in higher energy prices,” Makhlouf said. “Going forward, I will be paying close attention to indirect effects, that is how higher energy prices are contributing to cost-push inflation in production, transportation, and services.”

Potential second-round effects through wages would take longer to show up because of staggered wage-setting in Europe, he said.

Inflation expectations meanwhile needed to be closely monitored for signs of dis-anchoring, Makhlouf said.

“We are committed to setting monetary policy to ensure that inflation stabilizes at our 2% target in the medium term,” he said.