The European Central Bank may need to raise rates again because inflation risks lean to the upside, ECB policymaker Primoz Dolenc said. He pointed to energy costs, low gas storage and resilient euro zone growth as the main threats, while stressing the size and timing of any move remain unclear.
The European Central Bank may have to keep raising interest rates given an abundance of upside inflation risks, ECB policymaker and Slovenian central bank chief Primoz Dolenc said. Yet the timing and size of any move remain far too uncertain to predict, he added.
Inflation risks tilt higher
Dolenc said headline inflation rose to 3.8% last month, above the ECB's projections and largely driven by energy prices. Still, core inflation has stayed relatively stable, which he said points to limited pass-through to services and no second-round effect on wages so far.
Even so, Dolenc argued risks are skewed toward higher price readings. Low natural gas storage levels ahead of winter could push energy costs higher, and food prices may rise on high input costs, droughts and El Niño. Rate decisions will be made on a meeting-by-meeting basis, he said, based on incoming data.
Growth holds up despite the energy shock
The euro zone economy was expected to take a hit from the energy price surge this year. Instead, it grew at its quickest rate in four years in the second quarter, well above its potential, driven mainly by personal consumption and services spending. Dolenc said survey indicators suggest that resilience is likely to persist.
Bond yields stay under watch
A rise in longer-term borrowing costs may be a growth risk, as ECB board members Philip Lane and Isabel Schnabel have flagged. Investors are also demanding a higher premium to hold French debt, prompting some to ask whether the ECB would step into markets.
Dolenc downplayed that concern, saying monetary policy keeps transmitting evenly across the euro area. According to Reuters: "We haven't seen any destructive effect of rising yields on other parts of the economy."
Source: Economy News, Economy News
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