ECB policymakers take measured tone on price risks but urge vigilance

Speaking on the last day before the bank goes into a quiet period ahead of the July 23 meeting, board member Piero Cipollone and Austrian central bank chief Martin Kocher each said there was no sign yet of second-round effects.

The ECB can do little to stop oil prices from rising, but interest rate policy can slow or stop the initial inflation shock from seeping into the broader economy, raising inflation expectations and generating undue wage demands.

"At the moment we are paying particular attention to the indirect price effects of the war in the Middle East and possible second-round effects. We currently see no second-round effects, but must also align our monetary policy with inflation expectations," Kocher told German financial newspaper Börsen-Zeitung.

Cipollone, speaking to Ouest-France, made a similar comment, arguing the ECB has not detected a dangerous rise in price growth expectations or increased wage demands.

"The renewed outbreak of military conflict in the Middle East and the fresh rise in oil prices underscore that the situation remains extremely volatile and the uncertainty is similarly high," Bundesbank President Joachim Nagel said in an emailed statement.

"It remains advisable to react with caution, but to act decisively if necessary," he said. "Monetary policy will maintain its vigilant stance."

Markets had largely priced out a July move when oil prices fell sharply earlier this month and still only see a one in five chance of a hike next week, even after oil prices moved back above $85 a barrel.

Still, investors anticipate two more rate hikes by next spring with a September increase seen as fully priced in.