- We must remain calm amid Iran crisis
- The conflict has raised uncertainty
- Likely to see slightly higher inflation, less growth due to the conflict
- But inflation in France will remain low, don’t see stagflation happening
- Do not expect a rate hike at the ECB meeting next week
Meanwhile, we’re also hearing from ECB policymaker Nagel in saying that:
- Risk of higher inflation has risen, economic outlook has deteriorated
- ECB will act decisively if energy spike feeds into durably higher inflation
- But for now, a wait-and-see approach is appropriate
- Latest US statements on Iran conflict offer cause for hope
I don’t think the remarks here are of any surprises really. It’s been less than two weeks since the Middle East conflict started. And it remains to be seen how things might change in the weeks/months ahead. The initial spike in oil prices on Monday has also faded, thus affording major central banks some breathing room in dealing with scrutiny on inflation for now.
As mentioned earlier here, it will be a case of central banks playing down any outsized reaction next week. Policymakers love optionality and flexibility, so it would be poor form to rush into anything and jump to conclusions on the inflation outlook for the time being. They will continue to adopt a more gradual and wait-and-see approach, as Nagel mentioned.
That being said, the last thing they want is also for a repeat of the 2021-22 “transitory” fiasco.
