European Central Bank board member Isabel Schnabel told an audience in Rome that the euro area has not gone back to the situation that prevailed before the Iran war, even though oil prices have come down.
Schnabel said core inflation remains high and broad price pressures continue to affect the region. She questioned whether the drop in oil alone returns conditions to their pre-war state, saying: "Does the decline in oil prices mean that we are back to the pre-war situation? I don’t think so." She added that the peace agreement underpinning lower tensions is unstable and that market pricing still signals higher oil costs over extended periods.
On energy-specific measures, Schnabel said gas prices are still around 40% above their pre-war levels. She pointed to crack spreads - the metric that gauges refinery profitability - which she said are twice what they were before the conflict. She also said pressures persist in pipelines and along supply chains.
Beyond energy, Schnabel singled out weather-related risks. She warned that a current heat wave in Europe, together with a Super El Niño pattern, could lift food prices. She noted that rainwater levels are approaching critical thresholds, intensifying the concern.
Those comments, Schnabel said, leave open the prospect of further policy tightening from the central bank, although she indicated that a second interest-rate increase at the ECB's July 22-23 meeting appears less likely.
Belgian central bank governor Pierre Wunsch, speaking on the same panel in Rome, expressed a more cautious interpretation of market moves. He suggested that the energy-price shock tied to the war has been removed from market prices, saying the shock "appears to have vanished from market prices." Wunsch added: "We will have a projection in September, but I’m a bit afraid that we would hike too late when the movement starts in the other direction."
The remarks from Schnabel and Wunsch together underscore continuing debate within policymaking circles about how persistent inflationary pressures are and how monetary policy should respond given remaining geopolitical and weather-related uncertainties.