ECB Vice-President Boris Vujcic has pushed back against market pricing for further euro-area rate increases, arguing that much of the recent shift is being driven by the oil shock. Reuters reported that Vujcic sees a risk that investors are extrapolating energy-driven inflation into a stronger policy response than may ultimately be required.
Oil is the key variable behind the repricing
The Middle East supply shock has raised energy costs and inflation expectations across Europe. Markets have responded by pricing a more restrictive ECB path, but Vujcic's comments emphasise that policymakers must judge whether the shock becomes persistent through wages and broader prices rather than react mechanically to crude alone.
If oil prices stabilise or retreat, rate-hike expectations could unwind quickly, pulling down front-end euro-area yields and reducing support for the euro. If energy inflation broadens into core inflation, however, the case for additional tightening would strengthen.
Other European policymakers have recently stressed that prolonged high oil prices could require tighter policy. Vujcic's intervention adds an important counterweight: the ECB is not treating every increase in headline inflation as evidence that another hike is inevitable.
Watch Brent crude, euro-area inflation expectations, wage data, EUR/USD and short-dated German yields. A sustained decline in oil would test whether the recent ECB hike premium reverses, while another energy spike could quickly restore hawkish pricing.
Affected markets: FX · Rates & Bonds · European Equities · Commodities