Inflation: OeNB boss Kocher warns of stagflation in the Middle East

The decision not to raise interest rates in April was justifiable. However, the central bank should not wait too long before tightening monetary policy if energy prices driven by the Iran conflict do not fall quickly. At the same time, Kocher emphasized that it was “not serious” to make a commitment weeks before the next interest rate meeting on June 11th. The ECB will continue to make decisions from meeting to meeting, depending on the data.

According to Kocher, the war in the Near and Middle East is affecting and endangering a phase of early economic recovery in Europe, especially in Germany and Austria. The risk of stagflationary development cannot therefore be ruled out, even if the economy and labor market have so far shown themselves to be resilient. What matters is how long the conflict lasts.

Kocher also warns of second-round effects

At the same time, Kocher warned of possible second-round effects. If the war continues and energy prices remain high, the risk of higher wage agreements and thus additional price dynamics will increase. However, the effects could differ from the wave of inflation in 2021 and 2022, as demand is now weaker and companies are finding it more difficult to implement price increases.

With regard to the USA, Kocher warned against political influence on monetary policy. It is legitimate for governments to criticize the content of central banks. “But if attempts are made to exert influence through strong personal pressure, this potentially limits the independence of a central bank,” he said, referring to statements by US President Donald Trump. The independence of the US Federal Reserve is in the long-term interest of the population. The ECB described Kocher as a prime example of institutional independence. No single country can dominate the decisions in the ECB Council.