'We shouldn't only think about fuel' - Central Bank governor flags cost of food and fertiliser in interest-rate decision

The ECB governing council will consider prices of goods other than fuel when deciding interest rates next month. The duration of the Middle East conflict, which has lasted longer than expected, will influence monetary policy. The ECB has not raised rates since the conflict began, but expectations remain for a June 11 increase due to inflation affecting consumer prices. Earlier decisions to wait and not raise rates in March and April may be reassessed because even a quick end to the war would still delay energy supply recovery. Indirect effects from a blocked strait can raise costs across sectors, including fertiliser, food, and manufacturing inputs such as helium. The ECB aims to reach 2% inflation while avoiding being too early or too late.

"The governing council decided at its meeting in March to "wait and see", Mr Makhlouf said, as the duration and intensity of the US-Iran war would be critical. "If it lasted for a long time, then monetary policy would have to react in some way." It was unanimously decided in April not to put up interest rates, but the governing council now has to consider that even if the war ended today, it would take time for energy supplies to recover."

""It's not just about fuel, or just about oil prices. It's about the indirect effects of the Strait being blocked," Mr Makhlouf told a press conference, citing the cost of fertiliser and even that of helium, crucial in the manufacturing of semi-conductors. Gas prices are close to the ECB's baseline scenario, but oil is beyond the adverse scenario though not at severe scenario. While he had not personally seen any second-round effects, such as on wages, a lag is generally expected."

""I am as interested in the indirect effects, such as on fertiliser, food and other impacts," the Central Bank governor said. "We shouldn't only think about fuel." Stressing that the ECB will take "whatever action we need to take" to achieve the long-term target of a 2pc inflation rate, Mr Makhlouf said: "We don't want to be pre-emptive, and we don't want to be too late.""

Read at Irish Independent