European Central Bank Executive Board member Isabel Schnabel cautioned that the recent decline in oil prices should not be interpreted as a return to pre-war inflation conditions, arguing that underlying price pressures remain elevated. “Does the decline in oil prices mean that we are back to the pre-war situation? I don’t think so,” she said on Monday, warning that the Middle East peace deal is still fragile and that markets continue to signal higher oil prices over longer horizons.
Schnabel noted that gas prices remain around 40% above pre-war levels, while refining margins are still elevated, with crack spreads “twice their pre-war levels.” She also pointed to ongoing pipeline and supply chain pressures, adding that “core inflation remained strong.” Together, these factors suggest that lower crude oil prices alone are insufficient to ease broader inflationary pressures facing the Eurozone economy.
She also highlighted emerging climate-related risks, saying that Europe’s heatwave and the developing Super El Niño could push food prices higher, while declining rainwater levels threaten to disrupt transport and supply chains. The remarks reinforce the ECB’s cautious stance on inflation and suggest policymakers are not yet ready to rule out further tightening, even as markets increasingly expect the central bank to leave interest rates unchanged at its July meeting.
