• New trade tariffs could push eurozone inflation up by 0.5 percentage points, ECB's Holzmann warns.
  • ECB credibility at risk if inflation re-emerges, with recent data showing inflation above 2%.
  • Holzmann cautions against premature rate cuts, suggesting a 50 basis point reduction this year "would not be a good decision."

Rising Inflation Risks from Tariffs

Robert Holzmann, a member of the European Central Bank's Governing Council and governor of the Austrian Central Bank, has issued a stark warning about the inflationary impact of new trade tariffs. Speaking at a recent financial conference, Holzmann cautioned that tariffs could add as much as 0.5 percentage points to eurozone inflation, complicating the ECB's efforts to stabilize prices around its 2% target.

Recent data has already shown inflation climbing to "well above" 2% in December and January, raising concerns about the central bank's ability to maintain price stability. The potential for further inflationary pressure from tariffs comes at a delicate moment for the ECB, which recently lowered its key interest rates by 25 basis points but remains cautious about committing to a full easing cycle.

ECB Credibility on the Line

Holzmann emphasized that the ECB's credibility is directly tied to its ability to manage inflation expectations. "Should inflation re-emerge, the ECB loses credibility," he stated bluntly during his remarks. This concern is particularly acute given recent research showing that public understanding of the ECB's inflation target and strategy plays a crucial role in maintaining trust in the institution.

The warning comes amid growing geopolitical tensions and the threat of escalating trade measures. A 25% tariff on European goods by the United States could reduce eurozone GDP growth by around 0.3 percentage points in the first year, with potential for greater impact if the EU retaliates, according to economic models cited by Holzmann.

Cautious Policy Stance

Contrary to market expectations for aggressive rate cuts, Holzmann suggested the ECB would need to maintain a measured approach. When asked about the possibility of a 50 basis point reduction this year, he responded that such a move "would not be a good decision" given the current inflation risks.

The ECB currently projects inflation to average 2.3% in 2025 before settling at its target in 2027, but these forecasts remain highly sensitive to external shocks. Holzmann stressed the need for a data-dependent approach, noting that the central bank would need to carefully monitor both inflationary pressures and economic growth indicators before making further policy adjustments.

Attempts to reach other ECB governing council members for additional comment were unsuccessful as of publication time.