ECB Chief Economist Philip Lane warned that a prolonged conflict in the Middle East could significantly raise inflation in the Eurozone while undermining economic growth.
In an interview with the Financial Times, Lane said “Directionally, a jump in energy prices puts upward pressure on inflation, especially in the near-term, and such a conflict would be negative for economic activity.”
He emphasized that the ultimate impact would depend on the “breadth and duration” of the war.
Still, with current inflation running at 1.7%, below the ECB’s 2% target, a limited energy-driven uptick would not necessarily warrant immediate action. In particular, monetary policy cannot effectively counter short-term price swings as it operates with long lags.
