Key insights
- ECB's Rehn suggests a cautious approach to raising interest rates despite rising Eurozone inflation, emphasizing the need to assess the persistence of the energy shock. He indicates that decisive action will be taken if second-round effects on prices and wages emerge. This stance introduces uncertainty, potentially weighing slightly on US equities due to global economic interconnectedness and potential impacts on multinational corporations.
WASHINGTON, April 16 (Reuters) - The European Central Bank still has a chance to look past the current inflation shock and calm judgment must prevail over haste, Finnish central bank chief Olli Rehn said on Thursday.
Euro zone inflation jumped well above the 2% target last month as oil prices surged, prompting policymakers to debate whether to raise interest rates to prevent the shock from triggering a broader inflation spiral.
"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 told a conference in Washington. "Right now, the outlook is foggy."
He said that if the damage to energy markets remained limited in time and scale, it could be "possible though by no means certain" for the ECB to look past the shock.
However, decisive and forceful ECB action could be needed if the energy shock began generating so-called second-round effects on prices and wages, and if longer-term inflation expectations moved higher.
"Calm judgment will prevail over haste, and no decisions are predetermined," Rehn said.