European Central Bank policymaker Isabel Schnabel warned that geopolitical tensions require the central bank to remain vigilant about inflation risks. Speaking in New York, Schnabel said the ECB must carefully monitor energy prices and potential cost pass-through by firms, even as inflation remains near the 2% target.

Schnabel, known as one of the ECB's most hawkish members, emphasized that temporary deviations from the inflation target are acceptable as long as consumer expectations stay anchored. Her comments come ahead of the next ECB meeting, where policymakers must weigh the impact of Middle East conflicts on both inflation and economic growth.

The ECB faces a delicate balance as energy prices surge due to regional tensions. While higher prices could push inflation above target, they may also dampen economic activity, creating stagflationary pressures. Schnabel stressed that the central bank's price stability mandate remains robust enough to handle these challenges without overreacting to short-term fluctuations.