Europe | The ECB and oil: no juggling acts

Summary

The ECB is addressing the supply shock stemming from the conflict in the Middle East by using economic scenarios. The institution is taking a watchful stance toward inflation risks and the persistence of energy prices to avoid second-round effects on the economy.

Key points

• Key points:
• The institution’s response to the current complexity is based on developing multiple forecast scenarios rather than a single projection.
• The three scenarios outlined by the ECB incorporate a high persistence of oil and gas prices, suggesting that it is prepared to raise interest rates if the war lasts more than a few weeks.
• The strategy aims to anchor inflation expectations in a context where economic agents retain recent memory of the inflationary period following COVID-19.
• The current conflict poses challenges for Europe’s strategic autonomy and the global transition toward alternative energy sources.

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