ECB's Schnabel says the central bank must act early to prevent second-round effects - investingLive

European Central Bank board member Isabel Schnabel has underscored the importance of acting preemptively to keep inflation from becoming entrenched. In remarks reported by investingLive, she argued that the central bank must move early to prevent so-called second-round effects. These occur when initial price shocks feed into wage demands and business pricing decisions, creating a self-reinforcing cycle that outlasts the original trigger.

Schnabel’s comments are significant because they signal that the ECB’s policy stance is likely to remain focused on containing inflation expectations even as growth concerns mount. For markets, the key implication is that interest rate expectations could stay higher for longer than some participants anticipate. Investors will be watching upcoming data on wages and services inflation, as well as the ECB’s communication, for confirmation of this cautious approach. The tone suggests a preference for front-loading policy adjustments rather than adopting a wait-and-see stance, a nuance that can influence euro-area bond yields and the euro’s exchange rate in the near term.