Kazimir Urges ECB to Keep Guard Up on Lingering Inflation Risks

1. The ECB’s credibility is anchored on its inflation-targeting regime. If inflation risks are underestimated and inflation begins to run above target persistently, expectations may become unanchored, leading to a harder fight later. Kazimír’s warnings reflect concern about that scenario.

2. Policy flexibility vs overreaction
   Kazimír is making the case that the ECB should not overreact to every small uptick or downtick in inflation numbers. Over-engineering policy in response to short-term noise could itself destabilise markets or undermine policy transmission. On the other hand, remaining too passive could allow inflation to rise uncontrolled.

3. Risk spectrum with upside tilted
   The message is that inflation risks are not just about undershooting (inflation falling significantly below target) but also about overshooting. Factors such as tight labour markets, rising wages, higher commodity/energy prices, and supply-chain bottlenecks remain potential triggers for upward pressure.

4. Market expectations & policy path
   Given Kazimír’s tone, markets might interpret that the ECB is less likely to rush into rate cuts or easing, and more likely to adopt a cautious “data-dependent” approach. That could affect bond yields, euro exchange rates and investment decisions across euro-area economies.

Key take-aways

• The ECB should remain on guard for inflation rising again, not just falling.

• Minor fluctuations around the 2 % target are not by themselves cause for alarm or immediate policy change.

• The bank’s next moves will depend heavily on incoming data — wage growth, domestic prices, energy and supply conditions.

• While easing or rate cuts may seem desirable if inflation appears under control, Kazimír signals that such moves should only follow clear evidence of durable disinflation.

• Investors and economists should monitor key indicators: underlying inflation (excluding volatile items), wage pressures, energy/commodity cost trends, and inflation expectations.

Looking ahead  what to watch

• Labour market data: If employment remains strong and wages pick up, inflation may get a second wind.

• Commodity and energy prices: A rebound could feed into consumer prices faster than expected.

• Supply-chain/supply-shock risks: New disruptions (geopolitical, logistical) could push inflation up.

• Inflation expectations: If businesses or consumers start expecting higher inflation persistently, that becomes self-fulfilling.

• ECB communications and timing: Any shift in tone towards readiness to tighten again would be significant for markets and the euro.

In sum, Kazimír’s message to the ECB and to observers is clear: do not become complacent. While the short term might look smoother, the risks of inflation creeping back up are real, and the policy toolkit must be ready. The bank must strike a balance between not overreacting and not under-reacting.

If you like, I can pull up the latest inflation and wage growth numbers for the euro-area so we can evaluate how close these risks might be to crystallising