Bundesbank President Joachim Nagel has issued a stark warning: the ongoing Iran-Middle East conflict could keep eurozone inflation elevated, making the European Central Bank's next moves far more complicated.
Oil prices have surged past $110 a barrel, feeding inflationary pressures across the bloc. With eurozone growth projected at just 1.1% for 2026, the ECB faces a tough dilemma: keep raising rates to fight inflation, or cut them to support a slowing economy.
Nagel warned that inflation expectations risk becoming entrenched, potentially forcing more aggressive rate hikes down the line. Markets are currently pricing a 100% probability of no rate cut at the ECB's April meeting-a sign that traders see inflation staying sticky.