ECB Governing Council member Madis Müller said the ECB may need more evidence on second-round inflation effects before changing policy, but it might not have to wait until these effects are fully visible. He said that if energy prices stay high for several weeks, it becomes more likely that broader price effects will follow. Müller said higher energy costs could start to appear in the prices of other goods and services by the next policy meeting. He said the ECB would then need to assess whether that is enough to justify action.

Monitoring Data And Acting In Time

He said the ECB will monitor incoming data and aim to act in a timely way if needed. He added that any decision at one meeting would not fix the next move, and that measured steps are usually preferred to reduce the risk of market disruption. He said the ECB is in a better position to respond than in 2022. Before the next meeting, he said the ECB will review an April labour market report, unemployment, the ECB wage tracker, wage trends, and wider inflation data. He said a longer war in the Middle East increases the chance of a policy response. At the time of writing, EUR/USD was 0.15% lower near 1.1510. With the ongoing war in the Middle East pushing oil prices to hover around $115 per barrel, the likelihood of an ECB response is growing. We see a clear signal that the central bank is prepared to act if these elevated energy costs persist. This is a shift in tone, suggesting a more hawkish stance is developing ahead of the next meeting.

Implications For Inflation And Markets

We are already seeing these pressures in the data, with the latest February 2026 flash estimate showing headline inflation at 3.1%, surprising many. More concerning is the sticky core inflation, which printed at 3.5%, indicating that energy costs are bleeding into other sectors. This is precisely the kind of second-round effect that will force a policy adjustment. The upcoming April labor market data will be critical, especially since the last report for Q4 2025 showed negotiated wages rising by 4.8%. A tight labor market, with the unemployment rate at a low of 6.3%, gives workers more power to demand higher pay to offset rising costs. This wage-price spiral is a key concern we must monitor. For derivative traders, this environment points towards higher implied volatility in the coming weeks, particularly for euro-related assets. It may be prudent to consider buying options, such as straddles or strangles on the EUR/USD, to profit from a significant price move in either direction. The current uncertainty makes directional bets riskier than volatility plays. We should also be looking at interest rate derivatives, as the market is currently underpricing the probability of a hike at the next meeting. Traders could position for this by selling Euribor futures contracts, which would profit if short-term interest rates rise as the ECB acts. The pricing of these contracts will be highly sensitive to every piece of incoming inflation and wage data. We must remember the situation from 2022, when the central bank was seen as being behind the curve in responding to the post-pandemic energy shock. The messaging now explicitly states we are in a better position to respond, suggesting a lower tolerance for waiting. This historical context implies a quicker and more decisive policy reaction this time around. Create your live VT Markets account and start trading now.

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