European Central Bank board member warns: The Middle East energy shock has not yet affected wages, and the longer the conflict lasts, the greater the risks become.
European Central Bank member Rehn stated that the energy shock in the Middle East has not yet affected prices and wages, but the longer the conflict lasts, the greater the risk of transmission; the central bank has already raised interest rates twice, and rates may be raised again.
According to Golden Ten Data APP, Olli Rehn, a member of the Governing Council of the European Central Bank, stated that the Middle East energy shock has so far not spread to other prices or wage sectors, but the possibility of such impacts cannot be ruled out.
The Governor of the Bank of Finland said on Tuesday in Helsinki, "Such impacts may gradually and imperceptibly emerge," emphasizing the need to remain vigilant. "The longer the Middle East conflict continues, the greater the risk that rising energy prices will spread more broadly."
Since the outbreak of war, the European Central Bank has raised borrowing costs twice, most recently in September, as the energy shock pushed inflation far above its 2% target. According to sources who spoke to the media last month, officials expect interest rates to be increased further, but any move will depend on upcoming data.
Rehn said that the euro area economy has remained resilient, although growth is still sluggish. Strong demand has made it easier for companies to pass higher costs on to consumers, thereby increasing the risk that the energy shock will transmit more broadly to inflation.
Meanwhile, the Bank of Finland pointed out that as the artificial intelligence (AI) investment boom drives up capital demand, long-term interest rates are also rising. Inflation expectations, mounting public debt, and greater global uncertainty are also fueling this trend.
Rehn stated, "The rise in long-term interest rates is dragging down economic growth and, in turn, curbing the transmission of rising energy prices to other prices and wages."
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