Finnish central bank chief Olli Rehn has urged the European Central Bank (ECB) to prioritise calm judgment over haste when confronting the current inflation shock across the euro zone. Speaking on Thursday, Mr Rehn emphasised the importance of assessing the long-term persistence of price increases rather than reacting solely to immediate surges. The European Central Bank (ECB) is the central bank of the 19 European Union countries which have adopted the euro. It is primarily responsible for monetary policy in the euro zone, aiming to maintain price stability and ensure the integrity of the euro. Euro zone inflation significantly surpassed the ECB’s 2% target last month, driven largely by surging oil prices, prompting a critical debate among policymakers regarding potential interest rate hikes to curb a broader inflation spiral.
During his address at a conference in Washington, Mr Rehn highlighted that the crucial factor is not merely the immediate rise in prices, but rather whether the shock leads to persistent effects on inflation and the general price level. He acknowledged the current “foggy” economic outlook but suggested that if the disruption to energy markets remains limited in both duration and scale, it could be “possible though by no means certain” for the ECB to look beyond the immediate inflationary shock without immediate policy changes.
However, Rehn also made clear that decisive and forceful action from the ECB could become necessary under specific circumstances. This would be particularly true if the energy shock began generating so-called second-round effects, impacting broader prices and wages, or if longer-term inflation expectations started to significantly escalate. He concluded by reiterating his position that “calm judgment will prevail over haste, and no decisions are predetermined,” signalling a measured and adaptable approach from the central bank in the face of economic uncertainty.
