Summary
Bulgarian central bank governor Dimitar Radev warned that euro?zone inflation expectations may rise more quickly than in the past as consumers and businesses adjust to higher energy costs. In an interview with Reuters he said the European Central Bank must be prepared to raise interest rates swiftly if signs of persistent price pressures emerge?506553446504846†L209-L213?. Surging energy costs linked to the Iran war have already pushed inflation above the ECB’s 2% target and policymakers are debating whether to tighten policy to prevent second?round effects?506553446504846†L214-L217?. Radev noted that the balance of risks has shifted unfavourably and that the likelihood of an adverse scenario has increased due to the energy shock and elevated uncertainty?506553446504846†L224-L230?. A key concern is that consumers and businesses, still scarred by runaway prices just a few years ago, may quickly demand higher wages and prices, setting off a self?reinforcing inflation spiral?506553446504846†L233-L236?. He added that inflation expectations have become more responsive to new shocks, meaning price pressures can spread faster?506553446504846†L240-L244?. While current data show expectations remain anchored and second?round effects are not yet visible?506553446504846†L248-L253?, Radev said the environment is fragile and the cost of inaction could rise if the shock persists?506553446504846†L255-L260?. Financial markets are already pricing in more than two rate hikes this year, with the first expected in June?506553446504846†L262-L264?. For households and investors, this underscores the importance of monitoring inflation indicators, maintaining a diversified portfolio, and preparing for potential interest?rate increases.
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