"Eagle" sounds non-stop! Kazakhs: High oil prices boost inflation, forcing the European Central Bank to raise interest rates

European Central Bank Executive Board Member and Governor of the Central Bank of Latvia, Mrti Kazks, said on Thursday that if the rise in crude oil prices leads to inflation expectations, the European Central Bank will have to raise borrowing costs. Kazks said, "Oil prices have risen, and we see that they are gradually pushing up inflation. If inflation expectations start to deteriorate, the European Central Bank will be forced to raise interest rates." Currently, the market generally expects the European Central Bank to raise interest rates by 25 basis points at the June meeting. Some officials have stated that they have enough data to support this move, but others believe that they need to see further weakening of the economic outlook before taking action. Kazks said, "The financial markets have already priced in a rate hike - I cannot confirm or deny this. We will monitor the situation. But if you look at scenario analysis and forecasts, the current situation is more severe than the initial projections of the baseline scenario." The shadow of "stagflation" haunts the European Central Bank Executive Board as hawkish voices grow Before Kazks made the above remarks, several senior officials of the European Central Bank had already made hawkish statements in succession. Executive Board Member of the European Central Bank and President of the German Central Bank, Jens Weidmann, said on Wednesday that the probability of the European Central Bank needing to raise rates is increasing due to the impact of the situation in Iran. Weidmann said, "I still hold out a glimmer of hope for significant easing of the situation in the Middle East - but we cannot ignore high energy prices," "Raising interest rates is becoming increasingly likely unless there is a fundamental change in the inflation situation." He also warned, "We may still face considerable inflation pressure in the future." Executive Board Member of the European Central Bank and President of the Bank of Finland, Olli Rehn, warned on Wednesday that the situation in Iran escalating along with rising energy prices is already showing signs of stagflation in the euro area data. Rehn said, "The signs are already visible in the statistics, with the euro area's economic growth in the first quarter just slightly above zero, and the inflation rate accelerating to 3%." He emphasized that the current shocks are not as severe as the surge in prices in 2022, but the situation has already deviated from the European Central Bank's baseline expectations and is moving towards a "less optimistic scenario, at least in terms of oil prices." It is reported that the shadow of "stagflation" is looming over the euro area economy, and the policy space of the European Central Bank continues to be squeezed. On one hand, the situation in the Middle East is pushing up international oil prices and exacerbating inflation pressures in Europe. On the other hand, the slowing economic growth in Europe and the continued weakening of market confidence are also limiting the scope for further rate hikes. Data shows that the euro area's inflation rate surged to 3% in April, the fastest pace since autumn 2023, higher than March's 2.6%. Meanwhile, the euro area's GDP only grew by 0.1% in the first quarter, lower than expected, with growth prospects not looking optimistic. European Central Bank Vice President Luis de Guindos bluntly stated that the upcoming economic activity data "will not look good," and urged caution in interest rate decisions. He emphasized that even if a ceasefire agreement is reached soon, the conflict will leave "scars" - some infrastructure has already been destroyed, and consumer confidence has declined. Currently, economists predict that the European Central Bank will raise interest rates twice this year - by 25 basis points each in June and September, which is closer to the market's expectation that the European Central Bank will act at least twice this year.