For the ECB, conflict weighs negatively on supply and demand and raises uncertainty

European Central Bank (ECB) board member Fabio Panetta said on Monday (28) that the “dramatic” conflict in Ukraine exacerbates uncertainties, in addition to weighing negatively on supply and demand.

Panetta said Russia’s military invasion of its neighbor “exacerbates risks to the medium-term inflation outlook on both sides.”

In that context, Panetta said it would be unwise to pre-commit to future policy steps until the current crisis is clearer. “And the ECB remains ready to act to prevent any dislocation in financial markets that could come from the war in Ukraine and to protect the transmission of monetary policy,” he stressed.

The official said that the eurozone economy “faces a series of imported supply shocks, which push up inflation and contain demand”.

According to him, the exit from the Covid-19 pandemic has been characterized by global divergences between supply and demand, “in the energy and goods markets in particular”, with unequal effects between sectors.

Panetta stated that the current situation is one of “greater financial volatility in the short term”. In addition, he considered that, in the medium term, macroeconomic uncertainty increased.

For him, inflation has been driven by a global shift in consumer spending, from services to manufactured goods, and a picture of production problems because of the pandemic. “This has translated into bottlenecks in the global supply chain, high prices for durable goods and strong pressures on the chains,” he says.

The supply shock has been absorbed in the euro zone, but at a different pace depending on the economy, he considered.