NextFin News - European Central Bank Governing Council member Gabriel Makhlouf warned on Friday that upside risks to inflation have "intensified," signaling a potential shift in the central bank’s policy trajectory as price pressures in the services sector remain stubbornly high. Speaking in Dublin, the Governor of the Central Bank of Ireland noted that while headline inflation has retreated from its peaks, the path toward the 2% target is becoming increasingly fraught with geopolitical and domestic wage uncertainties.
The warning comes on the heels of preliminary Eurostat data showing Eurozone headline inflation reached 3.0% in April, a significant jump from the 2.5% recorded in March. While core inflation, which strips out volatile energy and food prices, edged down slightly to 2.2% from 2.3%, the persistence of services inflation at 3.2% has raised alarms within the Governing Council. Makhlouf’s comments suggest that the "last mile" of disinflation is proving to be the most difficult, as tight labor markets across the continent continue to drive wage growth.
Makhlouf, who has led the Central Bank of Ireland since 2019, is generally viewed as a centrist on the ECB’s Governing Council, often bridging the gap between the "hawks" of Northern Europe and the "doves" of the South. His recent shift toward a more cautious tone is significant; earlier this year, he had expressed optimism that interest rate cuts could be delivered in a "measured" fashion. By highlighting intensified upside risks now, Makhlouf is signaling that the window for aggressive monetary easing may be closing, or at least being pushed further into the horizon.
The Irish governor specifically pointed to "fractured" global trade and supply chain volatility as structural forces that could keep prices elevated. According to Makhlouf, central banks are now operating in a world where supply shocks are no longer transitory anomalies but frequent disruptions. This perspective aligns with a growing minority of policymakers who worry that the ECB’s current restrictive stance may need to be maintained for longer than markets currently anticipate to prevent a second wave of inflation.
However, Makhlouf’s hawkish tilt does not yet represent a broad consensus within the ECB. Other members, particularly from the Mediterranean economies, have recently pointed to the loss of momentum in Eurozone economic growth as a reason to remain on a path of gradual rate reductions. The Eurozone economy has struggled with stagnation in its industrial heartlands, particularly Germany, where manufacturing activity remains subdued. For these policymakers, the risk of "undershooting" the inflation target due to a recession is as great a concern as the risk of a price rebound.
The divergence in views highlights the delicate balancing act facing U.S. President Trump’s counterparts in Europe. While the U.S. administration has pushed for a weaker dollar and lower global borrowing costs to stimulate trade, the ECB remains tethered to its primary mandate of price stability. If the ECB holds rates higher for longer while the Federal Reserve begins to cut, the resulting euro strength could further dampen European export competitiveness, adding another layer of complexity to the regional growth outlook.
Market participants are now closely watching the ECB’s June meeting for updated staff projections. If the forecast for 2027 inflation is revised upward, Makhlouf’s warnings may transition from a minority caution to the dominant policy narrative. For now, the "strange equilibrium" of moderate growth and falling inflation that characterized the start of 2026 appears to be giving way to a more volatile reality where the threat of a price resurgence cannot be ignored.
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