Euro zone inflation expectations could rise more rapidly, prompting the European Central Bank to act decisively if persistent price pressures emerge.
Policymaker Dimitar Radev warned that the balance of risks has shifted, with uncertainty increasing and the likelihood of a more adverse economic scenario growing.
A key concern is that consumers and businesses may quickly adjust expectations, triggering a self-reinforcing inflation cycle through higher wages and pricing behavior.
Radev noted that recent trends suggest expectations are now more responsive, allowing shocks to pass through the economy faster than under normal conditions.
Although current data shows stable expectations and limited second-round effects, the ECB remains cautious in a fragile and rapidly changing environment.
Markets have already priced in multiple rate hikes this year, reflecting expectations of a proactive response to sustained inflation risks.
The ECB will closely monitor wages, energy costs, and sentiment indicators, emphasizing that timely intervention may be critical to maintaining price stability.
