ECB’s Schnabel Says Early Action Is Needed to Prevent Second-Round Effects
Key Takeaways
- •Schnabel warned that inflation could become entrenched if the ECB does not respond early to persistent price pressures.
- •She said eurozone inflation is likely to remain above the ECB’s 2% target for an extended period and could spread into wages and broader prices.
- •She noted that the eurozone economy is gaining momentum, which may keep inflation elevated without policy restraint.
- •She expressed concern about natural gas prices, which recently reached their highest level since March.
- •Markets are pricing a 95% probability of a rate hike at the ECB’s September meeting and about 40 basis points of tightening by year-end.
ECB Executive Board member Isabel Schnabel reiterated the need to act early to prevent inflation from becoming entrenched, warning that second-round effects remain a key risk as price pressures persist across the eurozone.
She said inflation is likely to remain above the ECB’s 2% target for an extended period, which could eventually feed through into wages and broader inflation. Schnabel stressed the importance of keeping inflation expectations firmly anchored, a central challenge for policymakers when price pressures are broad-based and energy costs remain volatile.
Schnabel added that financial markets appear to understand the ECB’s reaction function well and said the extent of policy tightening will depend on incoming economic data. That leaves the central bank watching not just headline inflation, but also indicators that show whether higher prices are spreading through the economy.
She also said the eurozone economy appears to be gaining further momentum, which could keep inflation higher for longer without some policy restraint. In addition, she expressed concern about the natural gas situation after prices recently rose to the highest levels since March. Overall, European natural gas prices rose more than 130% in 2026.
Schnabel remains focused on inflation as stronger growth momentum and elevated energy prices pose a risk to the ECB’s 2% target. Her comments are in line with her reputation as one of the Governing Council’s more hawkish members. The market is currently pricing 40 basis points of tightening by year-end, with a 95% probability of a rate hike at the ECB’s upcoming meeting in September.
