By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice-President Boris Vujčić said Friday that persistent pressure on refined energy products, particularly diesel, could continue feeding into inflation, with lost refining capacity unlikely to return in the foreseeable future.

Vujčić made the comments during a policy panel at a conference jointly organized by the European Central Bank and the Federal Reserve Bank of Cleveland.

“It’s quite clear now that in foreseeable future we will not see the refining capacity coming back to the levels where it was before this conflict,” Vujčić said.

The resulting pressure on diesel prices was likely to prove persistent and spread beyond the energy component of inflation, he said.

“Energy prices, particularly diesel, will probably stay high for long and that will feed into the inflation because diesel is really in many products,” Vujčić said.

Prospects for a near-term easing of geopolitical tensions had meanwhile diminished, according to Vujčić, who noted that expectations earlier this year of an agreement between the United States and Iran had not been realized.

“Today, I don’t think that neither us nor markets see that anything will happen before the end of this year,” he said.

Against that backdrop, Vujčić described the central risk as “higher for longer energy prices.” Investors had adjusted their expectations accordingly, he said, explaining that this was “why there has been this repricing of the curves.”