The European Central Bank is prepared to respond in a “timely and measured manner” if rising energy prices risk becoming embedded in broader inflation, according to governing council member Fabio Panetta.
Speaking at the Bank of Italy’s annual assembly in Rome, Panetta said the latest inflation outlook suggests that a “recalibration” of ECB monetary policy may be warranted as policymakers assess the economic consequences of the recent surge in energy costs.
His remarks come ahead of the ECB’s next governing council meeting on 10-11 June, where markets widely expect an interest-rate increase. Several policymakers have already indicated that policy action may be necessary to contain inflationary pressures.
Panetta stressed that a key issue for the June meeting will be evaluating how much of the increase in energy prices is likely to feed through into the wider economy and consumer prices.
He warned that oil and natural gas markets may remain under pressure even if the conflict involving Iran is resolved quickly, suggesting that elevated energy costs could persist for longer than initially expected.
The Bank of Italy governor also noted signs that inflation expectations are beginning to rise among households, while businesses have already started preparing for higher prices by planning increases to their own goods and services.
Despite these concerns, Panetta highlighted that medium-term inflation expectations reflected in financial markets remain firmly anchored around the ECB’s 2% target, indicating continued confidence in the central bank’s ability to maintain price stability over time.
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