Vice-President of the European Central Bank Luis de Guindos reaffirmed on Thursday that the medium-term inflation expectations still are close to the 2% target. "That said, we are closely monitoring for second-round effects, notably wage-setting behavior," added de Guindos at the 20th annual symposium on Building the financial system of the 21st century: an agenda for Europe and the United States. "We need to prevent the scenario where the high inflation that we currently see becomes entrenched in expectations."
He further mentioned that the "sector is facing new headwinds from the war on the banking system." Concretely, the "higher energy and commodity prices, combined with potential energy supply disruptions, could lead to credit risks in the corporate sector, especially in energy intensive sectors." The latter does not seem difficult for him to manage in the short term, but a "sustained rise in interest rates" could aggravate the risk of "fragmentation in sovereign bond markets".
