By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Ante Žigman said Friday that renewed hostilities between the United States and Iran would strengthen inflation pressures and weigh on euro area economic activity.

“The recent renewal of hostilities between the United States and Iran has again pushed up the price of oil, which will strengthen inflationary pressures and negatively affect economic activity,” the Croatian National Bank governor said in comments posted on LinkedIn.

The Governing Council would therefore closely monitor incoming data, particularly possible indirect and second-round effects of higher oil prices on inflation, Žigman said.

“We took the decision amid continuing exceptionally pronounced uncertainty,” he said of Thursday’s decision to leave the ECB’s key interest rates unchanged.

Euro area inflation declined to 2.8% in June from 3.2% in May following the ceasefire agreed in the Middle East that month, while medium- and longer-term inflation expectations remained stable, Žigman noted.

Available indicators also suggested that euro area economic growth remained solid, he said.

“In September, we will consider new macroeconomic projections and assess the risks to their realization,” Žigman said. “That will help us take decisions that return euro area inflation to the 2% target over the medium term.”

Croatian inflation had declined in recent months and moved closer to the euro area average, with that trend expected to continue in July, he said.

Higher oil prices could revive inflation pressures in Croatia, but future Governing Council decisions should ensure that Croatian inflation returned to levels close to its long-term average, Žigman said.