ECB executive warns current energy price pressures may feed into output costs but demand conditions limit inflation risks compared to 2022.
European Central Bank Chief Economist Philip Lane stated the current energy shock’s propagation may be more contained than in 2022 but faster than historical averages. Rising selling price expectations indicate input costs could translate into higher output prices in the coming months.
Lane noted firm-side and news-based indicators suggest the shock is unfolding in a less demand-supportive environment. While the impact may be mid-sized, a persistent overshoot could require a forceful monetary response. Demand destruction and fiscal expansion play opposing roles in shaping the required policy adjustment.
The ECB’s optimal response to supply-driven disruptions may be smaller than for demand shocks, according to Lane’s remarks. The central bank’s primary tool remains interest rate adjustments to maintain price stability near its 2% target.