FRANKFURT, Jan. 8 (Reuters) – Soaring energy prices could cause the European Central Bank (ECB) to stop “watching” high inflation and start taking action, especially if the ecological transition turns out to be inflationary, a declared Saturday Isabel Schnabel, member of the board of governors of the institution.
The rise in consumer prices in the 19 countries using the single currency reached 5% over one year in December, a record level that is more than double the ECB’s 2% target.
The ECB believes, however, that this increase will slow down on its own as inflation is fueled mainly by transitory factors.
“The rise in energy prices could lead to a departure from a policy of ‘look through’, said Isabel Schnabel, believing that a more persistent increase in energy prices could eventually force the ECB to act.
According to her, two scenarios could lead the ECB to review its monetary policy. The first is to determine whether high energy prices spill over into other sectors of the economy and change pricing behavior.
“But at the moment, there is no sign of bigger second round effects,” she said. “The growth of wages and the demands made by the unions remain relatively moderate,” she added.
The second scenario consists of examining whether the trajectory of energy prices, strongly linked to carbon taxes and ecological transition, threatens to pull headline inflation above the institution’s target. (Report Balazs Koranyi; French version Claude Chendjou, edited by Matthieu Protard)