FRANKFURT, (Reuters) – Europe’s efforts to get off Russian gas are likely to continue to boost inflation beyond this current peak, Isabel Schnabel from the European Central Bank said Thursday.

The European Union’s leaders agreed to speed up the green transition after Russia invaded Ukraine last month. This will bring about a lot of investments in renewable energy.

The conflict will likely continue to be a major contributor to inflation in the near future as any significant decline in fossil fuel prices appears unlikely. Schnabel stated this in a speech at a financial conference.

However, even with the conflict in the Middle East, the prices will rise because of the huge amount of investment needed to transition. This is expected to generate a positive demand shock that can continue to drive inflation.

Schnabel stated that “such indirect effects of higher oil prices could be a persistent source for upward pressure on the underlying inflation.”

She added that “they are not an unforeseen price shock that policymakers are able to simply glance through,” especially as pipeline pressures continue to increase like today.

Schnabel did not deny that there were concerns regarding the power of central banks to limit price growth in such booms.

The current situation would see the ECB tightening its policies to reduce high inflation. However, high energy prices have already slashed household purchasing power. This leaves policymakers in a difficult position.

Schnabel explained that there is no green transition from the current shock to a classic, demand-driven inflation scenario. The ECB does have the resources and tools necessary to manage it.

“Greenflation is much more likely to be the result of a strong and persistent positive demand shock, or investment boom, that re-establishes the ‘divine coincidence’ of monetary policy – that is, the ability of central banks to stabilise inflation and output simultaneously,” Schnabel said.