ECB's Schnabel Warns Oil Drop Won't Tame Inflation

European Central Bank Executive Board member Isabel Schnabel pushed back against the idea that falling oil prices signal the end of the inflation fight. Lower crude alone is not enough to bring price pressures back to pre-war levels, she said Monday.

Gas prices remain about 40% above where they stood before Russia's invasion of Ukraine. Refining margins are still elevated. Crack spreads, a measure of the profit from turning crude into gasoline and diesel, are running at twice their pre-war levels. Schnabel also noted that core inflation – which strips out volatile food and energy – stayed strong through the latest readings.

Pipeline bottlenecks and supply chain disruptions continue to feed through to consumer prices, she said. Those factors mean the ECB cannot declare victory just because oil has retreated from last year's peaks.

Schnabel added a climate dimension to the inflation outlook. Europe's heatwave and the developing Super El Niño could push food costs higher. Declining rainwater levels threaten to disrupt transport and supply chains across the continent. Those risks are not captured in the headline oil price, she argued.

The remarks reinforce the ECB's cautious stance. Markets have been pricing in a rate hold at the July meeting, and Schnabel's comments suggest policymakers are not yet ready to rule out further tightening. The central bank's next decision is due July 27.

For traders watching the euro, the message is that the ECB's inflation fight is far from over. Energy costs are only one piece of the puzzle. Core inflation, margins, and climate shocks all point to persistent pressure that could keep the ECB on a tightening bias even as oil slides.