ECB contender de Cos warns of inflation risks as Iran war keeps energy prices high

Pablo Hernández de Cos, a candidate to lead the European Central Bank, expressed concern over inflation risks stemming from the Iran war's impact on energy prices. As the head of the Bank for International Settlements, he noted that the war has yet to prompt significant wage or price hikes, despite rising energy costs. De Cos emphasized that policymakers should closely monitor economic data for signs of inflation before deciding on interest-rate adjustments.

He cautioned against making assumptions about future energy market developments when setting policy.

The euro-area's inflation rate stands at approximately double the ECB's 2% target, prompting questions about potential increases in borrowing costs to restore price stability. De Cos advised that any rate hikes should be based on actual inflation trends rather than speculative market forecasts. He also voiced worries about European governments' mounting budget deficits, especially as higher interest rates increase the expense of debt servicing.

France, in particular, has drawn investor attention due to its fiscal challenges, adding to the list of concerns for European officials.

De Cos is one of two contenders to replace Christine Lagarde as ECB president, alongside former Dutch central bank chief Klaas Knot. The European finance ministers are set to evaluate the candidates on Monday, with the final appointment to be made at a meet-up on November 26-27. While De Cos did not explicitly mention his candidacy during the interview, his warnings highlight the economic challenges European policymakers must address as they grapple with energy-driven inflation and mounting government debt.