By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Álvaro Santos Pereira said over the weekend that monetary policy should act quickly if inflationary pressures risk becoming persistent, signaling support for a rate hike at the ECB’s June 11 meeting.

Pereira, who heads the Banco de Portugal, told Jornal de Negócios that ECB decisions would depend heavily on how long the Middle East conflict lasted, or was expected to last.

“What will happen in terms of European Central Bank decisions will depend very much on how long this conflict will last, or is expected to last,” he said.

With prices expected to continue rising as a result of the conflict, Santos Pereira said it was preferable to respond sooner.

“I think it is better to act earlier than later, so that we do not then have second-round effects that are much greater,” he said. “When there are possible inflationary spirals, I prefer that we act more rapidly and decisively.”

The closure of the Strait of Hormuz would affect not only the distribution of natural gas and oil, but also the supply of fertilizers, he said.

That would have immediate effects on energy prices and would push up other prices, while also creating second-round effects that would be felt later, he said.

“We have to see what the impacts are on energy prices and on other materials, and whether this is being transmitted to the rest of prices and whether it is also having an impact on wages,” he said. “If these second-round effects are significant and prolonged, it is natural that inflation will be more prolonged.”

Pereira said it was “extremely important” to act quickly when there were signs that prices would rise, rather than waiting in the hope that second-round effects would not materialize.

The Portuguese central bank governor said he was more concerned about inflation than about a major economic deceleration.

“I am more worried about inflation than about a significant slowdown of the economy,” he said.

Pereira said he did not see a risk of stagflation in Portugal, arguing that the issue was not economic deceleration but rather faster price increases.

Artificial intelligence-related investment was helping cushion the economic impact of the energy shock, he said.

“In addition to the energy shock, there is a revolution that is having an enormous impact on investment in several countries, which is the AI part,” he said. “If we were not at this moment benefiting from the revolution that is happening at the AI level and the impact it is having in terms of the investment boom, the energy shock would certainly be worse.”