(Bloomberg) -- The European Central Bank faces significant dangers to achieving its inflation goal, according to Vice President Luis de Guindos, who cited factors that could pull prices too far in either direction.

“While we expect inflation to return to our 2% target next year, the outlook is surrounded by substantial risks,” the Spanish official said Monday. “The geopolitical situation, especially in the Middle East, poses a particular upside risk to inflation.”

Among other such factors, he listed corporate profit margins and upward pressure on salaries in the euro area. Downside risks include a stronger-than-anticipated dampening impact of monetary policy on demand, or an unexpected worsening of the global economic backdrop, Guindos said in London. 

The comments come as debate heats up among ECB officials over how rapidly policy can be loosened following a planned initial rate reduction in June. With the economy having endured a mild recession in the latter half of 2023, some want quick-fire cuts to help buoy a recovery. Others, though, fret about threats to energy costs from tensions in the Middle East and enduring price pressures in the domestic services sector.

Services inflation has “eased substantially from its peak level of close to 6% in July 2023,” Guindos said. “However, its decline has stalled since the second half of last year and it has remained at 4% for the last five months of available data.”

Perhaps strengthening calls for caution, data due Tuesday are expected to show inflation held steady this month at 2.4%, though policymakers have long warned that the road back to 2% wouldn’t be smooth.

While investors continue to bet on about three quarter-point cuts this year, Guindos reiterated that officials can’t comment on the road ahead.

“We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction, and we are not pre-committing to a particular rate path,” he said. 

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