WASHINGTON, April 16 - The European Central Bank (ECB) can still consider the recent jump in inflation as a transitory disturbance, Finnish central bank chief Olli Rehn said on Thursday, urging policymakers to favor calm, measured judgment rather than hasty reactions.
Rehn addressed delegates at a conference in Washington as euro zone inflation climbed well above the ECBs 2% target last month following a surge in oil prices. The spike has prompted debate among policymakers over whether interest rates should be raised to prevent the energy shock from feeding into broader and more persistent inflation pressures.
What matters most is not the immediate increase in prices, but whether the shock has persistent effects on inflation and the general price level, Rehn said at the conference. He added, Right now, the outlook is foggy.
Rehn said that if the disruption to energy markets proves limited in both duration and magnitude, it could be possible though by no means certain for the ECB to look through the episode. That judgment would allow policymakers to avoid tightening prematurely in response to a temporary rise in consumer prices.
At the same time, Rehn warned that decisive and forceful ECB action could be needed if the energy shock begins to generate second-round effects - a scenario in which higher energy costs lead to broader price increases and faster wage growth - or if longer-term inflation expectations move upward. In that circumstance, the central bank would need to act to prevent a more entrenched inflation dynamic.
Calm judgment will prevail over haste, and no decisions are predetermined, Rehn said, underscoring a data-dependent approach to policy-making amid uncertain prospects.
This assessment places particular attention on developments in energy markets and on indicators of wage growth and expectations, which together will inform the ECBs response to the current price shock.