ECB’s Sleijpen Dismisses Oil Volatility as Threat to Inflation Outlook

European Central Bank policymaker Olaf Sleijpen said the recent surge in oil prices will not significantly alter the ECB’s economic outlook, signaling confidence that monetary policy remains appropriately calibrated even as Middle East conflict drives energy market volatility.

The Dutch central bank governor told Reuters on March 6 that while he would no longer use the term “nirvana” to describe current conditions, he hasn’t “dramatically changed” his view that the ECB is “still a good place.” Sleijpen emphasized it remains “too early to say what this will mean for the economy or Monetary Policy in the long run” given the conflict has only been unfolding for days. When asked whether March is too early to change policy, he confirmed his stance, saying “I’m still in the good place, so, yes.”

The Inflation Transmission Challenge

The comments come as Brent crude surged nearly 13% at its peak in early March, settling around $84.25 per barrel, while prices on March 4 reached $82.57 following US-Israeli strikes on Iran and retaliatory attacks that have disrupted shipping through the Strait of Hormuz. The strait carries roughly one-fifth of the world’s total oil consumption.

Early estimates from economists suggest that persistently high energy prices could lift eurozone inflation to the neighborhood of 2.5%. Yet Eurostat’s flash estimate showed inflation already rose to 1.9% in February from 1.7% in January, with core inflation climbing to 2.4% from 2.2% — data collected before the latest Middle East escalation began disrupting energy markets.

Sleijpen acknowledged that an oil price shock “raises inflation but weighs on growth, which has a disinflationary impact,” noting policymakers must also account for exchange rate effects, as “we’ve seen a dollar appreciation lately.” The central banker said the ECB “could tolerate a modest and temporary overshoot of its 2% inflation target,” emphasizing the bank is “consistent and symmetrical” and does not “put a higher weight on either under or overshooting.”

Lessons From 2021, Different Context for 2026

According to Reuters, Sleijpen said the ECB has learned lessons from the 2021-22 inflation surge but “must be careful in drawing too many parallels” since the current environment is “fundamentally different,” noting monetary and fiscal policies are already tighter than they were then. “One of the lessons of that period is that we need to be aware of the risks around supply side shocks,” he said, acknowledging they “may have an impact on inflationary dynamics at a certain point, where the central bank has to react.”

Market expectations have been volatile this week, with investors now seeing a 1-in-2 chance the ECB would have to raise rates by the end of the year to contain price pressures. However, the ECB’s December 2025 projections forecast headline inflation averaging 2.1% in 2025, 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028. The ECB has held its deposit facility rate at 2.00%, main refinancing operations at 2.15%, and marginal lending facility at 2.40% since June 2025.

The Central Bank Dilemma Intensifies

The ECB faces what CNBC reported ING economists called a “genuine dilemma,” as an oil shock could push already sticky inflation higher while the growth outlook weakens under the strain of higher US tariffs, adding that “to see a rate hike, the eurozone economy would have to show clear resilience.” ECB council member Pierre Wunsch said officials would avoid reacting hastily to energy price movements, stating “If it lasts longer, if the increase in energy prices is higher, then we will have to run our models and see what happens.”

Goldman Sachs raised its oil-price forecast for the second quarter, expecting Brent to average $76 per barrel, $10 more than before, with WTI forecast increased by $9 to $71, according to Euronews. The bank based this projection on five more days of very low exports via the Strait of Hormuz, followed by gradual recovery, but warned that five weeks of disruption could push oil to $100.

According to Trading Economics, Oil Prices jumped more than 20% this week, which “could push inflation higher in the short run since Europe relies heavily on imported energy.” Markets are now pricing in a small chance of a rate hike by December, though “the bank says its policy stance is appropriate, but it remains ready to adjust if inflation risks intensify.”

What to Watch

The ECB’s March 19 policy meeting will be the first test of whether policymakers maintain their confidence in the face of sustained energy price pressure. Around 85% of economists surveyed by Reuters in January said the ECB would leave rates unchanged over the rest of 2026, with Deutsche Bank’s base case forecasting the ECB to hold rates at 2% through 2026, with the next move being a hike in mid-2027.

The duration of the Strait of Hormuz disruption will be critical. According to Euronews, crude tanker transits through the strait dropped to four vessels on March 1, compared with an average of 24 per day since January, with Lloyd’s List Intelligence data suggesting around 200 internationally trading tankers are effectively stranded in the Gulf. If shipping normalizes within weeks, the inflationary impact may prove transitory as Sleijpen suggests. But a protracted crisis would force the ECB to choose between tolerating above-target inflation and tightening policy into a weakening economy — precisely the stagflationary dilemma central banks faced in the 1970s and worked to avoid in 2022.

March eurozone inflation data, due April 2, will provide the first hard evidence of whether energy price pass-through is accelerating. Services inflation, already at 3.4% in February, bears close monitoring as the sector accounts for 42% of the harmonized index and has proven stickier than goods prices throughout the disinflation process.