ECB's Schnabel Warns of Escalated Euro Zone Inflation Risks

European Central Bank Executive Board member Isabel Schnabel warned Thursday that inflation risks in the euro zone have escalated due to geopolitical tensions driving up energy prices, urging tighter monetary policy to prevent broader economic spillover.

Speaking in London, the German policymaker highlighted signs of persistent price pressures, including a growing number of companies planning to raise prices despite weak demand and households lifting their inflation expectations. Schnabel attributed much of the concern to surging oil prices and supply disruptions, which she said could spread through the economy more quickly than during the 2021-22 inflation surge because recent experiences remain fresh in public memory.

"If the energy price shock broadens, monetary policy will need to tighten to contain the risk of second-round effects threatening medium-term price stability," Schnabel told her audience. "This risk has increased in recent weeks."

Her comments align with other ECB rate-setters who support interest rate increases, potentially starting as early as June, to combat these pressures. Financial markets have responded by pricing in three or four quarter-point hikes over...