EU Commissioner Dombrovskis says ECB will have to respond to inflation increase
EU Economy Commissioner Valdis Dombrovskis said the energy price shock from the Iran war is driving the euro area inflation trajectory and the European Central Bank will have to respond. The statement reshaped market expectations ahead of next week's ECB Governing Council meeting.
Dombrovskis, speaking in Brussels, cited euro area April core inflation rising to 3.1% year-on-year and said energy prices are creating sustained pressure. The commissioner warned that the ECB continuing without a monetary policy response would risk dislodging medium-term inflation expectations.
Financial markets had not expected an ECB rate hike before July, but following Dombrovskis's remarks the German 10-year Bund yield rose 8 basis points and the Italian 10-year yielded 12 basis points higher. The comments align with prior statements by Holzmann and Wunsch, the hawkish voices on the ECB Governing Council.
According to the IMF's latest assessment, the Iran-war-driven energy shock has added roughly 1.2 points to annual euro area inflation, so additional ECB tightening would weigh on growth. Senior Commission officials add that fiscal policy coordination may also come onto the agenda. Investment decisions should follow professional financial advice.
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