ECB Governing Council warns: The energy shock in the Middle East has not yet affected wages; the longer the conflict drags on, the greater the risk

The Zhitong Finance App learned that ECB Management Committee member Oli Rehn said that the Middle East energy shock has not spread to other price or wage sectors so far, but it is impossible to rule out the possibility that these effects will occur.

The governor of the Bank of Finland said in Helsinki on Tuesday, “This kind of impact may gradually and unwittingly become apparent.” It also emphasized the need for vigilance. “The longer the conflict in the Middle East continues, the greater the risk that rising energy prices will spread more widely.”

Since the war began, the ECB has raised borrowing costs twice, most recently in September, as the energy shock drove inflation far above its 2% target. According to people familiar with the matter revealed to the media last month, officials expect interest rates to rise further, but any action will depend on upcoming data.

Rehn said that the Eurozone economy has remained resilient, although growth is still weak. Strong demand makes it easier for companies to pass on higher costs to consumers, increasing the risk that energy shocks will spread more widely to inflation.

At the same time, the Bank of Finland notes that as the boom in artificial intelligence (AI) investment pushes up demand for capital, long-term interest rates also rise, fueled by inflation expectations, rising public debt, and greater global uncertainty.

Rehn said, “The rise in long-term interest rates is dragging down economic growth, which in turn inhibits the transmission of rising energy prices to other prices and wages.”