The flames of war between the US and Iran reignite, the European Central Bank's board closely monitors energy inflation! Oil prices once again become a key factor in European Central Bank monetary policy.

Member of the European Central Bank's Governing Council and President of the Bundesbank, Joachim Nagel, stated that the ECB is closely monitoring global energy costs following the resurgence of geopolitical tensions in the Middle East and increased uncertainty in geopolitical future. Apart from Nagel, other members of the ECB Governing Council have indicated that the ECB is more likely to keep its monetary policy unchanged in July, but there is no unanimous agreement to end the rate hike cycle. In a statement sent via email, the Bundesbank president expressed that the past few weeks have been "filled with hope and disappointment." He added that the resurgence of conflict between the US and Iran highlights the ongoing volatility of the current situation. "The trajectory of energy prices is a key factor in determining future inflation prospects," Nagel said. "Monetary policy will continue to maintain a vigilant stance." These comments were made on the eve of the silent period before the ECB meeting on July 22nd to 23rd. Economists generally expect that the ECB Governing Council members will unanimously keep interest rates unchanged at this meeting. Investors still anticipate that ECB policymakers will hike rates later in the year to address inflation pressures stemming from the Iran conflict. Austrian central bank governor Martin Kocher and ECB Executive Board member Pietro Chilonne recently stated in interviews with newspapers that there has been no observed increase in wages that could solidify price pressures leading to a second round of inflation. Kocher reiterated that the focus of future decisions will be on maintaining or further increasing borrowing costs. Nagel emphasized that borrowing costs are currently at a "appropriate" level following the decision made in June, and the ECB Governing Council will continue to consider all relevant data in monetary policy deliberations at upcoming meetings. "From a monetary policy perspective, reacting cautiously is still a wise choice, but decisive action must also be taken when necessary," he said. The ECB raised rates by 25 basis points in June and expects overall inflation to be 3.0% in 2026 and 2.3% in 2027, significantly higher than the 2% medium-term target. The market generally expects a pause in July, rate hikes in September to have been fully priced in, and bets on two more hikes before the spring of next year. This means that the ECB is not returning to a period of continuous tightening, but is waiting to see if the energy shock transmits to wages, service prices, and inflation expectations. Among the hawkish camp, the rhetoric of Belgian central bank governor Pierre Wunsch is the most clear: even if the US-Iran ceasefire briefly lowered oil prices, he still retains the possibility of raising rates as early as July, and believes that if inflation spreads from energy to a wider range of prices, the ECB can raise rates again to "ensure safety"; Greek central bank governor Yannis Stournaras stated that the inflation situation has "returned to square one" due to the resumption of conflict, shifting his position from a flexible watchful eye to a neutral leaning hawk. Austrian central bank governor Martin Kocher stated that there is currently no evidence of wage or inflation expectations rising, but clearly stated that the main options for the future are to maintain or raise rates, and to take action when necessary. Overall, the ECB Governing Council is not currently dominated by hawks over doves, but has formed a conditional consensus to pause first, then decide on rate hikes based on the sustainability of the oil price trajectory and second-round effects.