The Central Bank of Ireland published a speech by Governor Gabriel Makhlouf setting out how he is assessing the inflation and growth implications of a conflict-driven disruption at a major energy supply chokepoint and how this informs the European Central Bank’s (ECB) meeting-by-meeting policy stance after the Governing Council kept rates unchanged at 2 per cent in March. Makhlouf framed the shock as initially pushing energy prices up and output down, with later-moving demand effects potentially weighing on inflation over time, and flagged indirect and second-round effects (notably wages) as the key uncertainty. He referenced three ECB staff March projection scenarios for energy prices: a baseline with oil and gas peaking at around USD 90 per barrel and EUR 50/MWh in Q2 2026 then declining; an adverse scenario peaking at USD 119 and EUR 87/MWh in Q2 2026 and converging to baseline by Q3 2027; and a severe scenario peaking at USD 145 and EUR 106/MWh in Q2 2026 and remaining significantly higher for longer. Under the baseline, inflation is 2.6 per cent in 2026 before returning to around 2 per cent in 2027-28, while the adverse and severe scenarios lift 2026 inflation to 3.5-4.4 per cent and keep inflation above target through 2027-28 in the severe case; GDP growth in 2026 falls to 0.4 per cent in the severe scenario versus around 1.2 per cent in the December projections. He underlined that scenarios are used to convey uncertainty and test policy robustness rather than select a single forecast, consistent with no pre-committed rate path; the baseline projections were conditioned on a market-implied path of around two 25 basis point rate increases during 2026, while the adverse and severe scenarios made no rate-path assumption. The indicators he said he is monitoring span energy prices, freight and insurance costs, European gas storage (28 per cent on 24 March), pipeline pressures including producer prices and stage-of-production prices, fertiliser and transport fuel prices, wage dynamics via the ECB Negotiated Wage Tracker and the Indeed Wage Tracker developed with the Central Bank of Ireland, and inflation expectations measures. He pointed to the Eurostat flash estimate for March released 31 March showing headline inflation at 2.5 per cent and core inflation at 2.3 per cent, and said he will also watch the breadth of price pressures across the Harmonised Index of Consumer Prices basket.
Central Bank of Ireland 2026-04-01
Central Bank of Ireland Governor Makhlouf outlines scenario-led ECB policy approach as Middle East conflict raises energy shock risks
The Central Bank of Ireland published a speech by Governor Gabriel Makhlouf on how conflict-driven disruption at a major energy chokepoint is feeding into the European Central Bank’s meeting-by-meeting monetary policy after the Governing Council kept rates at 2 per cent in March. He outlined ECB staff baseline, adverse and severe energy price scenarios, with 2026 inflation between 2.6 and 4.4 per cent and GDP growth falling to 0.4 per cent in the severe case, stressing these are tools to assess uncertainty, not a pre-committed rate path. Makhlouf said he is monitoring energy and freight costs, European gas storage, producer and wage data, inflation expectations and the latest Eurostat flash estimate showing March headline inflation at 2.5 per cent and core inflation at 2.3 per cent.