European Central Bank Governing Council member Fabio Panetta said that officials mustn\u2019t let war-driven inflation stoke wages, while cautioning against too strong a response.<\/p>\n
In comments on Tuesday in Rome, the Bank of Italy governor told his institution\u2019s annual meeting of shareholders that fallout from the Iran crisis<\/a> risks outlasting any hostilities currently gripping the Middle East.<\/p>\n \u201cA highly uncertain environment is taking root and is likely to extend beyond the acute phase of the conflict,\u201d Panetta said. \u201cIt will be essential to monitor expectations closely and to prevent a wage-price spiral, while ensuring that monetary policy action remains proportionate and consistent with the ECB\u2019s mandate.\u201d<\/p>\n Panetta\u2019s comments provide a snapshot of how thinking at the central bank may be evolving now that the war has entered its second month.<\/p>\n <\/p>\n Also read:Luxembourg waits for key data as government monitors rising energy prices<\/p>\n <\/a><\/p>\n US President Donald Trump has told aides he\u2019s willing to end hostilities even if the Strait of Hormuz remains largely closed, according to the Wall Street Journal. But an attack on a tanker by Iranian drones early on Tuesday \u2014 one of the most significant such assaults of the conflict so far \u2014 underscores how military action is far from abating.<\/p>\n The remarks by Panetta coincided with the release of data both in Italy and in the euro region, underscoring how the energy crunch caused by the war has stoked inflation. Given the parallels with the gas-driven shock in 2022, officials are poised to ensure a timely response if needed before any second-round effects take hold.<\/p>\n \u201cMonetary policy is again facing a negative supply shock amid high uncertainty, as was the case in 2022, in the aftermath of Russia\u2019s invasion of Ukraine,\u201d Panetta said, while adding that interest-rate settings are now different. \u201cCompared with 2022, monetary policy is now in a more favorable position to safeguard price stability.\u201d<\/p>\n Whatever happens next, it\u2019s already the case that price growth<\/a> will be above the ECB\u2019s 2% target this year, with feebler economic expansion, according to the governor.<\/p>\n \u201cIf the energy shock were to be stronger and more persistent than in the baseline scenario, inflation would rise further, while growth would be weaker,\u201d he added.<\/p>\n