By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Martin Kocher said Friday that the ECB’s rate hike would help stabilize conditions as the Middle East war pushed inflation higher and raised the risk of second-round effects.

Kocher, who heads the Austrian National Bank, said in a statement accompanying the OeNB’s latest economic forecasts that the war had led to higher energy and commodity prices, weaker household purchasing power and greater investment restraint.

“As the war in the Middle East continues, the effects on price developments are becoming increasingly clear,” he said. “Higher energy prices not only have a direct impact on inflation, but also carry the risk of second-round effects.”

Still, inflation was not currently expected to return to levels comparable with 2022 and 2023, he said.

“What will be decisive is that the current price shock does not become permanently entrenched in inflation expectations and thus in general price developments,” Kocher said. “The increase in key interest rates decided yesterday contributes to a stabilization.”

“The European Central Bank will continue to act decisively to ensure the Eurozone target of 2% in the medium term,” he said.

Kocher said the latest ECB projections showed that inflation in the Eurozone would be higher this year than previously expected because of the continuing conflict, while growth would be somewhat lower.

Further monetary policy steps would be based on the inflation outlook and accompanying risks, the dynamics of underlying inflation and the strength of monetary policy transmission, he said.

The Governing Council would continue to decide on the policy stance meeting by meeting, he said.

Alongside the baseline forecast, the Governing Council had considered alternative scenarios reflecting different assumptions for energy prices, uncertainty and possible second-round inflation effects, Kocher said.

The OeNB said adverse and severe scenarios showed that additional increases in global energy prices, absent a further monetary policy response and with stronger second-round effects, could lead to higher medium-term inflation.

A mild scenario, by contrast, showed that a faster fall in energy prices following a favorable outcome to the Middle East conflict could lead to a stronger and faster decline in inflation, the OeNB said.

For Austria, the OeNB forecast 2026 HICP inflation of 3.2%, falling to 2.4% in 2027 and 2.1% in 2028. Austrian GDP was projected to grow 0.6% this year, 1.1% next year and 1.2% in 2028.