Hawkish warning from the strong candidate for the ECB presidency

Pablo Hernández de Cos, one of the two candidates competing to replace Christine Lagarde as president of the European Central Bank (ECB), signaled that monetary policy makers should continue to be careful about inflation risks arising from high energy prices.

In an interview published in the Swiss newspaper Tagesanzeiger, de Cos said that "second round effects", in which companies and workers increase prices and wage demands due to energy costs, have not yet emerged.

Drawing attention to the Iran war, de Cos said, "However, the first hope that the war would end in a short time and therefore energy prices would fall did not come true. Therefore, we need to remain alert about inflation risks."

De Cos, who currently manages the Bank for International Settlements (BIS) in Basel, Switzerland, stated that if central banks increase interest rates, this should be because they see risks to price stability in the emerging data.

De Cos declined to comment directly about his candidacy in the interview. The Spanish official expressed concern about high debt levels in some economies as a risk factor at a time when borrowing costs are likely to rise further.

"Even though public debt has already reached historical high levels, some countries continue to run persistently high fiscal deficits. Higher interest rates also increase the cost of servicing that debt," De Cos said.

Eurozone finance ministers will discuss candidacies for the next ECB presidency on Monday, with Spaniard de Cos and Dutchman Klaas Knot the only two names in the race so far.

The election comes at a time when inflation is twice the ECB's 2 percent target and financial pressures are worrying investors in France.

Although the Eurozone's 21 finance ministers will evaluate the candidates on Monday, the final decision will belong to European leaders. This brings attention to the unofficial summit planned to be held on November 13 and the special summit on November 26-27.