ECB contender De Cos warns energy costs could rekindle inflation

Energy prices and the inflation watch

Speaking to Swiss daily Tagesanzeiger, Pablo Hernández de Cos - among the two remaining contenders to replace Christine Lagarde at the European Central Bank - said officials must closely monitor inflation pressures arising from high energy prices. He added that second-round effects - where firms lift prices and workers demand higher wages due to energy bills - have not shown up yet.

"But the initial hope that the war would end soon, and that energy prices would therefore fall, has not materialized," he said, citing the Iran war. "So we need to remain vigilant about inflation risks." De Cos also said rate hikes should only follow if incoming data point to threats to price stability. He currently leads the Bank for International Settlements in Basel, Switzerland.

The race and what is at stake

The contest features Spaniard Pablo Hernández de Cos and Dutchman Klaas Knot, with the discussion landing as inflation runs at about twice the ECB's 2% goal and fiscal stress in France worries investors. In the interview, De Cos did not address his candidacy head-on.

Euro-area finance ministers from the 21 countries using the euro will weigh the contenders on Monday. The final call rests with European leaders, putting an informal Nov. 13 summit and a special Nov. 26-27 meeting in the spotlight.

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Debt risks and your playbook

De Cos flagged the vulnerability from heavy public borrowing at a time when the cost of money could climb further. "Some countries are running persistently high fiscal deficits even though public debt has already reached historic highs," he said. "Higher interest rates also increase the cost of servicing that debt."

Why it matters: higher deficits plus rising rates can squeeze budgets, influence the ECB's room to maneuver, and sway bond and equity pricing across the bloc. Keep an eye on Monday's review and those late November leader meetings for signals on policy continuity and how hawkish the next ECB chief might be.

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