ECB Governing Council Member Vujcic Warns of Stagflation Risks

European Central Bank board member Boris Vujcic said that as the Iran war intensifies and stagflation risks rise, central banks must be “highly flexible and vigilant” when it comes to controlling prices.

Vujcic, who will take office as the ECB vice president in June, said officials may soon be able to determine whether the impact of the conflict needs to be addressed by raising interest rates. However, he also warned that recent developments show the risk of high consumer prices alongside weak economic growth is increasing.

“We have not yet seen stagflation, but risks are moving in that direction,” the head of the Croatian central bank said in an interview in Zagreb. “As to how far it will develop, it is difficult to predict.”

Policymakers, including ECB board member Joachim Nagel of the German central bank, have indicated that as soaring energy costs begin to feed into inflation, the ECB should consider raising borrowing costs at next month’s interest rate meeting. Vujcic is open to this.

“In today’s world, it’s been a long time since April,” he said. “By then, a lot of new data and news will have emerged,” and “in this situation, anything is possible.”

The ECB’s latest forecasts show that under the baseline scenario, this year euro-area CPI is expected to rise by 2.6%, far above earlier expectations. Under the extreme scenario, if oil and gas supply shocks persist, the inflation rate could reach 6.3%.

Vujcic noted that while it is worth waiting a bit for now, “we have already deviated from the baseline scenario and are moving toward the worst-case outcome.”

He said that if the ECB decides it is necessary to raise borrowing costs, there are two options: either start early and deliver gradual, small rate hikes; or begin later with larger rate hikes.

“It’s best to start with small rate hikes first, and then see how events unfold,” Vujcic said. “For now, I think it’s still too early to reach a conclusion, but we will soon know whether action is needed,” he said.

“I think one or two rate hikes won’t do too much damage to the economy,” he said. “But the key question is whether rate hikes are necessary, because some would argue that one or two rate cuts would also be of no benefit to the economy.”

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责任编辑：李肇孚