ECB President Lagarde Welcomes Iran Agreement but Warns of Inflation Pressures

European Central Bank President Christine Lagarde [Photo=AFP·Yonhap]

Christine Lagarde, President of the European Central Bank (ECB), welcomed the preliminary ceasefire agreement between the U.S. and Iran but cautioned that energy shocks from the Middle East are spreading inflationary pressures across the Eurozone.
According to Reuters, in an interview with French media outlet France Culture on June 15, Lagarde stated, "I have observed that the indirect effects of inflation have begun to appear in nearly all sectors over the past few weeks." She emphasized that the ECB is particularly monitoring core inflation trends, excluding temporary factors.
Regarding the U.S.-Iran agreement, Lagarde noted, "If progress is confirmed in the coming days with the signing of a memorandum of understanding, it would be good news." However, she added that there are still issues to resolve, such as Iran's handling of enriched uranium.
On June 11, the ECB raised its benchmark interest rate by 0.25 percentage points to prevent the spread of rising energy prices from the Middle East. This marked the first interest rate increase among major central banks following the outbreak of the Iran conflict.
Lagarde acknowledged concerns that raising interest rates could exacerbate economic slowdown, stating, "I understand those worries, but if inflation resurges, it must be contained." She explained that prolonged high prices would be difficult for both consumers and industries to bear.
International oil prices fell by more than 5% following news of the preliminary agreement between the U.S. and Iran. However, within the ECB, there are cautious views that even if shipping through the Strait of Hormuz resumes, it may take time for energy supplies to return to pre-war levels.
Joachim Nagel, President of the German Bundesbank, remarked, "Some production facilities in the Middle East have been damaged or are offline, and stockpiles have also decreased, so it may take months to normalize oil supply."
In May, the Eurozone's consumer price inflation rate was 3.2% year-on-year, exceeding the ECB's target of 2%. Following the news of the U.S.-Iran agreement, market expectations for further ECB interest rate hikes have slightly decreased, but the ECB remains open to both holding rates steady and additional increases at its next monetary policy meeting.

* This article has been translated by AI.

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