European Central Bank officials are maintaining highly vigilant stance on inflation risks stemming from the Iran conflict. Bundesbank President Joachim Nagel emphasized policymakers' readiness to act against potential energy cost spillovers. While acknowledging the medium-term inflation impact remains uncertain, Nagel stressed the ECB's determination to prevent price increases from becoming entrenched and spreading throughout the economy.

Following last week's decision to keep rates unchanged, Nagel signaled a June rate hike is likely unless inflation outlook improves markedly. Executive Board member Isabel Schnabel concurred, stating the ECB will need to increase borrowing costs if the conflict leaves a lasting mark on inflation. The risk of second-round effects threatening price stability has recently increased, creating uncertainty for market participants.

Nagel highlighted concerning growth projections for Germany, where Bundesbank experts now expect potential annual growth of just 0.4% in coming years. He described this as "a warning sign" requiring reforms across multiple fronts: strengthening labor forces, improving investment conditions, and supporting innovation to secure the country's model of prosperity long-term amid global economic challenges.