By Marta Vilar – MADRID (Econostream) – European Central Bank Vice President Luis de Guindos said on Monday that the ECB must be prudent ahead of its next interest rate decision, warning that incoming economic data are likely to show weaker growth amid the ongoing energy-price shock.

In an interview with the Financial Times, de Guindos said the current energy shock could not be compared to the 2021-22 situation.

He said he believed there was less inflation risk now than in 2022, adding that then the ECB had been “late to act,” partly because policymakers focused excessively on debating whether inflation was driven by supply or demand factors.

“I think that we have to wait before deciding on the next interest rate move. We need more clarity about the conflict in Iran,” he said, adding that the ECB would have to first see the June projections.

“My impression is that the data on growth over the coming weeks are not going to be good,” he said. “Bear in mind that an energy shock is usually reflected in inflation indicators much more rapidly than in growth indicators.”

He said this was the reason why he called for prudence, because “the impact on growth is going to become much more visible over the coming weeks,” while greater clarity was still needed regarding the conflict in the Middle East.

He refused to predict the outcome of the next monetary policy meeting in June, noting that what he could do now was “argue for prudence.”

“Even if we have a truce or a peace agreement soon, the conflict is going to leave a mark because some infrastructure has been destroyed,” he said.

De Guindos described consumer sentiment as “another concern,” pointing to the recent decline in some key indicators.

“Regardless of the concrete elements that push up energy prices, the impact on sentiment is something we have underestimated at times,” he said.

He reiterated that his call for prudence was driven by expectations of weaker economic growth.

On wages, he said data from the wage tracker suggested the situation was “stable,” he said, adding that there had not been any significant increase in wage claims so far.

“Inflation expectations have not been unsettling so far either, even if you look at the future curve of oil,” he said. “Markets are discounting an increase in the short term, but expect prices to come back to close to the pre-conflict level afterwards.”

 

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