The sharp rise in oil prices linked to tensions in the Middle East has not yet fed through to wages in the eurozone or to prices of other goods. Olli Rehn, head of the Bank of Finland and a member of the European Central Bank’s Governing Council, said this at an event in Helsinki.
He said such effects can emerge gradually and may at first go largely unnoticed. Rehn warned that the longer the conflict in the Middle East continues, the greater the risk that higher energy prices will have a broader impact on inflation.
Since the start of the military hostilities, the ECB has raised borrowing costs twice amid faster inflation, most recently in September. The eurozone’s key deposit rate now stands at 2.5%, and the regulator’s next meeting is scheduled for October 29.
Most economists expect the ECB to leave rates unchanged in October, but to raise them by another 25 basis points in December, when updated macroeconomic forecasts are due to be published.
In Rehn’s view, the eurozone economy remains resilient, although growth is still moderate. He said strong demand is allowing companies to pass part of their higher costs on to consumers, while higher long-term interest rates are slowing economic activity and limiting the impact of more expensive energy on other goods and on wages.
