The war inflation effect is far from over! Chief Economist of the European Central Bank warns: Price pressures in the Eurozone may continue into next year.

Although the United States and Iran have announced an agreement and pushed for the reopening of the Strait of Hormuz, Philip Lane, Chief Economist of the European Central Bank, warned on Tuesday that the inflationary pressures triggered by the conflict in the Middle East have not fully transmitted into the economic system, and the European Central Bank must be prepared for sustained inflation above target levels in the near future. Lane said in a media interview that the high energy prices that have been persistently high for the past four months have already accumulated impacts in the inflation transmission chain, and in the coming months, the euro area inflation rate is likely to remain above 3%. "We have been able to see from the inflation transmission process that the inflation rate will remain above 3% in the near future," Lane said. "The impact of rising energy prices is not only reflected in energy itself, but will gradually transmit to food, goods, and services prices, and continue to affect inflation performance this year and next year." The European Central Bank raised interest rates for the first time since 2023 last week and warned that inflationary pressures driven by war are spreading beyond the energy sector to a more widespread economic sector. European Central Bank President Lagarde also emphasized this risk again this week. Currently, the market and economists widely expect the European Central Bank to raise interest rates at least once more, raising the deposit rate by 25 basis points to 2.5%, while the euro area inflation rate is expected to remain significantly above the European Central Bank's target level of 2% in the near future. Joachim Nagel, President of the German Central Bank, previously stated that even if the Strait of Hormuz resumes normal navigation, it will take several months for global oil supplies to return to normal. The high energy costs will increasingly be reflected in consumer prices in the future. Jose Luis Escriva, President of the Spanish Central Bank, holds a similar view. He believes that the recovery of the energy supply chain still faces challenges, and the related production capacity needs time to be rebuilt, so the pressure on the energy market is unlikely to completely dissipate in the short term. Regarding the future trend of oil prices, Lane believes that the market does not expect oil prices to quickly return to the levels before the outbreak of the conflict. He stated that currently international crude oil prices are maintained around $80 to $81 per barrel, and looking at the forward price curve, oil prices are expected to remain relatively stable in the coming years. "The market pricing does not show that oil prices will sharply fall back to pre-war levels," Lane said. "But at the same time, we have not seen the higher oil prices predicted in the extreme pessimistic scenarios." Although the easing of tensions between the US and Iran has relieved concerns about energy supply interruptions in the market, the cost pressures that have accumulated over the past few months continue to transmit to the real economy. Dealing with stubborn inflation in the background of weak economic growth will still be a major challenge for the European Central Bank in the future. As energy prices gradually transmit to the food, manufacturing, and services sectors, the possibility of the European Central Bank further tightening monetary policy in the future is increasing, which also means that the high interest rate environment in the euro area may persist for a longer period of time.