That would happen if the war significantly disrupts supplies of oil and gas, he said in an interview with the Financial Times. The scale of any shock would depend “on the breadth and duration of the conflict”, he said. Knock on effects outside of energy prices would result if the situation also gave rise to a “repricing of risk in financial markets”, he said.
If the war triggered higher energy prices that would likely be inflationary, driving up prices across the economy, although an extreme spike could hit growth so badly demand stalls.
The ECB would have to decide whether to raise or retain interest rates to calm inflation, or potentially, cut rates to revive growth risking even more inflation.
“This is not an environment where I see an argument in favour of taking a bit of risk on inflation,” Philip Lane said.
Meanwhile, Philip Lane’s succesor as Governor of the Central Bank of Ireland, Gabriel Makhlouf, said it’s “far, far too early to come to conclusions,” about the impact of the war and other geopolitical disruptions of the past year
“Businesses are not sure about their investment decisions, whether to delay them or not,” he told RTE radio.
“So we are paying very close attention.”
Belgium’s Central Bank chief, Pierre Wunsch, said he’s inclined for now to look past the jump in energy prices caused by the fighting in the Middle East.
Should policymakers face an “oil shock,” however, they’d have to assess the situation and decide what action to take, the Belgian central-bank chief told reporters Monday in Brussels.
Despite the likelihood that higher oil prices would also weigh on the economy, such an outcome would probably be inflationary on a net basis, he said.
“We don’t know much so I would certainly not rush to react to any movements to energy prices,” Wunsch said. “If it lasts longer, if the increase in energy prices is higher, then we will have to run our models and see what happens.”
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