Schnabel: Resilient economy accelerates cost pass-through to consumers

ECB's Isabel Schnabel shared her views in recent comments.

• High costs are passed through to consumers at a quicker pace when the economy is resilient.
• Robust dynamics in credit suggest that financial conditions are not yet restrictive.
• It is possible that the economy reacts more strongly to the recent rise in global yields than anticipated, which would dampen price pressures.
• When expectations are anchored, inflation can be returned to target more gradually.

Analysis: The signals are mixed. A resilient economy enables firms to pass higher costs along rapidly, sustaining inflationary pressures. Meanwhile, strong credit expansion indicates financial conditions have not become restrictive. These remarks carry a hawkish tone, as they raise questions about the extent to which monetary policy is restraining demand.

However, Schnabel also left room for patience. Higher global yields could slow the economy more than forecast, aiding in easing price pressures. If inflation expectations stay anchored — meaning households and businesses continue to anticipate inflation returning to target — the ECB can adopt a more gradual approach. The crucial question is whether rising borrowing costs begin to curb demand, or whether economic resilience keeps cost increases flowing through to consumers.