De Guindos characterized the current situation as a global supply shock that will ultimately lead to a combination of lower economic growth and higher inflation.

He said that while the overall net impact is inflationary, the resulting economic slowdown is already weakening aggregate demand, as seen in declining sentiment indicators and services PMIs, which could slightly temper some of those inflationary pressures.

He reiterated that the ECB will closely monitor inflation expectations and “second-round effects” to guide its upcoming monetary policy decisions.

The consensus in the Governing Council is to deliver an “insurance hike” in June and then take a pause at least until September to see how the economic data and the US-Iran situation evolves over the summer.

The market is pricing in a 93% chance of a rate hike in June and a total of 57 bps of tightening by year-end.