ECB Governing Council Member Vujoevic Warns of Stagflation Risk, April Rate Hike Window May Open Earlier

Reuters Finance App — According to Reuters Finance App, European Central Bank Governing Council member and soon-to-be Vice President of the European Central Bank in June 2026, Vujčić, stated that the ECB must maintain “a high level of flexibility and vigilance” to control prices, as stagflation risks brought by the Iran war are approaching. Vujčić pointed out that officials are likely to soon learn whether the impact of this conflict will necessitate raising interest rates. However, he also warned that recent developments indicate that the risk of persistent inflation amid weak economic growth is increasing. “We do not currently see signs of stagflation, but the risk is developing in that direction. How far we go in this trend is hard to predict. Many new data and news will be released before the April meeting, and everything is being updated in real time.”

This statement is highly consistent with the latest staff forecasts after the ECB’s March 19 meeting. The ECB significantly raised its 2026 eurozone inflation forecast from 1.9% to 2.6%, with core inflation (excluding energy and food) remaining high, driven mainly by soaring energy prices. Meanwhile, the 2026 economic growth forecast was lowered from 1.2% to 0.9%, clearly reflecting the dual pressure of high inflation and geopolitical risks on economic recovery. The eurozone policy rate remains at 2%, with markets fully pricing in a rate hike before July, and some institutions even expect a 25 basis point increase as early as the April meeting.

Vujčić recently emphasized at a European Parliament hearing that the Iran war poses substantial inflationary risks through oil and natural gas markets, with its impact on consumer prices exceeding short-term effects. Even if the conflict eases, energy base effects and secondary transmission could keep medium-term prices sticky. This aligns with ECB President Lagarde’s warning in March that Middle Eastern conflicts have a “substantial impact” on inflation, and the ECB must assess their dual impact on economic growth and inflation expectations.

The eurozone economy currently shows early signs of typical stagflation: rising energy costs push producer price indices (PPI), while consumer demand remains weak due to high interest rates and uncertainty. Recent data shows that in March, eurozone manufacturing PMI remains near expansion threshold, while services PMI has slowed due to energy transmission effects. Analysts note that if disruptions in the Strait of Hormuz persist, oil prices could stay above $100 in Q2, further amplifying spillover effects from commodities to core inflation.

To visually compare policy paths under different scenarios, the following table presents the ECB’s latest forecast scenarios:

Vujčić’s remarks highlight the ECB’s conditional decision-making: if new data before the April meeting (including March CPI, PMI final figures, and energy prices) confirm increasing stagflation risks, the ECB will not hesitate to adjust its policy stance; conversely, if conflicts ease quickly and energy prices fall, tightening measures may slow down.

Editor’s Summary

Latest forecasts show that although the eurozone has not yet fallen into stagflation, the Iran war has significantly raised the inflation midpoint for 2026 and suppressed growth expectations. The ECB needs to balance flexibility and vigilance, with the April meeting serving as a key window to test policy shifts.

(Editor: Wang Zhiqiang HF013)

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