ECB’s Cipollone calls stagflation risk from Hormuz crisis ‘remote’

European Central Bank Executive Board member Piero Cipollone said the risk of economic stagnation and a sharp increase in inflation stemming from the crisis in the Strait of Hormuz is "rather remote," pushing back against growing market fears that geopolitical turmoil could trap the eurozone in a stagflationary spiral.

Cipollone Sees No Stagflation Signs

In an interview with Italy's ilsussidiario.net published on Monday, Cipollone acknowledged the need to monitor the macroeconomic environment but said current data does not support the worst-case scenario. "We will of course need to monitor changes in the macroeconomic environment, but for the time being there are no signs pointing to a scenario of stagflation," he said, according to Reuters.reuters

The comments come amid the ongoing Strait of Hormuz crisis, which has severely disrupted global energy flows since early 2026. Transit through the strait dropped to as few as eight vessels per day in mid-August, down from 130 to 140 prior to the conflict. The disruption has pushed energy prices higher and raised questions about whether Europe faces a repeat of 1970s-style stagflation.aljazeera

Markets Pricing a Hawkish ECB

Cipollone's reassurance contrasts with increasingly hawkish market expectations. According to Reuters, traders are pricing in roughly a 25% chance of the ECB deposit rate reaching 3% by March 2027 and about a 60% chance by September 2027. Most analysts expect a 25-basis-point increase at the ECB's September 10 meeting, which would bring the deposit rate to 2.50% from its current 2.25%.reuters+2

The ECB raised rates by 25 basis points in June, its first hike since the rate-cutting cycle that ended in mid-2025, citing energy-driven inflation pressures from the Middle East conflict. ECB President Christine Lagarde struck a hawkish tone at the July meeting, warning that the energy shock "has yet to fully feed through the economy".ecb.europa+1

Balancing Growth and Inflation

Cipollone's remarks suggest at least some members of the ECB's Governing Council remain cautious about overtightening in response to what they view as a supply-side shock. The ECB's own sensitivity analysis has estimated that a sustained Hormuz disruption could reduce euro-area GDP by roughly 0.4 percentage points while lifting inflation by about 1.3 percentage points — a painful but manageable scenario rather than full-blown stagflation.globalbankingandfinance

Traders now face a September meeting where the central bank must weigh persistent energy risks against a eurozone economy that has yet to show clear signs of overheating beyond the energy sector.