ECB Executive Board Member Isabel Schnabel discusses inflation and monetary policy outlook

In an interview conducted on 21 May 2026, Isabel Schnabel, Member of the Executive Board of the European Central Bank (ECB), provided insights on inflation trends and monetary policy.

Inflation has risen to 3%, with expectations to reach 4% by the end of 2026. The current shock is considered very large and persistent, driven by higher oil and gas prices due to ongoing conflicts. The futures curve indicates oil prices will remain elevated over a significant period.

Schnabel emphasized that the energy price shock is spilling over into broader inflation, with indicators such as firms’ selling price expectations, PMI output prices, and inflation expectations showing increases. Wages are also being monitored through forward-looking indicators, though hard data lag behind.

Regarding policy, she stated that given the size and persistence of the shock, looking through the inflation spike is no longer appropriate. A rate hike in June is considered necessary, with subsequent decisions to be data-dependent. The ECB does not pre-commit to a specific rate path and emphasizes that market expectations are guided by the ECB’s communication.

Schnabel highlighted that headline inflation projections are heavily influenced by oil futures, which currently show negative base effects. The focus remains on underlying inflation, which shows upside risks, particularly in non-energy industrial goods and global supply chain pressures.

She discussed the potential impact of the energy shock on economic growth, noting that weakening demand and higher costs could slow growth, but the resilience of the euro area economy will be tested. Risks include shortages and disruptions to global supply chains, which could further downside growth and upside inflation risks.

On the bond market, she explained that rising yields mainly reflect increased inflation compensation and risk premia. The ECB’s response involves clear communication and data-dependent policy adjustments. The Transmission Protection Instrument (TPI) is available if needed but is not expected to be used soon.

Schnabel addressed concerns about liquidity and the ECB’s balance sheet, stating that the normalization process will lead to less ample liquidity and increased market volatility. The transition will be monitored, and structural operations will be defined later this year. The ECB’s independence remains intact, with fiscal policy and financial regulation being key factors.

Regarding the ECB’s leadership, Schnabel indicated she is prepared to serve as ECB President if asked, but no discussions have been publicly clarified. She emphasized that the ECB’s operational framework does not require knowing the exact timing of balance sheet normalization, which depends on market conditions and reserve demand.