Markets pushed up short-term eurozone yields after Peter Kazimir warned on March 10 that the conflict in Iran had raised upside risks to inflation and could bring the ECB closer to a modest rate increase. Kazimir, an ECB Governing Council member and governor of Slovakia’s central bank, said the bank was still in a "good place" and did not see a need to move at its March 18 meeting, but cautioned that energy shocks and memories of the 2021–22 inflation surge have lowered the threshold for price and wage responses.

Where he spoke and what he said Peter Kazimir made the remarks in an interview in Frankfurt on March 10, saying the balance of inflation risks has shifted to the upside because of the conflict in Iran. He added the ECB was still in a "good place" and did not see a need to move at the bank’s March 18 meeting, but warned that energy shocks and memories of the 2021–22 inflation surge have lowered the threshold for price and wage responses. "We will be ready to act if needed," he said. Market reaction and probability shifts - Traders quickly raised the odds of an ECB move in coming months after Kazimir’s comments. - Short-end yields in Germany rose and equity futures slipped as investors reassessed the outlook for policy and growth. - Earlier market calm had followed comments suggesting the conflict might end soon, but the overall repricing reflects renewed near-term inflation risk. Why the Iran conflict matters for eurozone inflation - Immediate channel: energy. The conflict has raised energy risk premiums and pushed energy costs higher, increasing input costs for firms and household bills. - Supply-chain risks: uncertainty for shipping and routes can keep goods prices elevated for longer. - Underlying pressures: Kazimir highlighted sticky services inflation, slower-than-expected easing in goods costs and wider profit margins as signs that underlying price pressures have not fully retreated. Policy trade-offs and outlook Analysts warn of stagflation risks — higher inflation with weaker growth — which forces central banks into a difficult choice between acting to defend inflation credibility or risking slower activity. Kazimir’s comments suggest the ECB is prepared to prioritize preventing inflation expectations from drifting up, even if that risks weighing on growth. Domestic memory of 2021–22 Kazimir stressed that the 2021–22 inflation episode changed behaviours: firms and workers now more readily pass through higher costs and demand pay rises faster than before, which could accelerate price and wage responses in a new shock.

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Kazimir’s parting line — "We will be ready to act if needed" — leaves the door open ahead of the ECB’s March 18 policy meeting.

This article was created with AI assistance.