European Central Bank’s Olli Rehn sees no second-round inflation effects from war shock

Olli Rehn, the Bank of Finland governor and European Central Bank Governing Council member, says the energy-price shock triggered by the Middle East conflict hasn’t bled into the broader economy. Wage growth in the euro area remains moderate, and the feared wage-price spiral that haunted policymakers during previous energy crises hasn’t materialized. That’s the good news. The less comforting part: Eurozone inflation just jumped from 2.9% in July to 3.3% in August, and oil is trading above $90 a barrel after climbing roughly 25% since the conflict began. What Rehn actually said In remarks on August 19, Rehn emphasized that so-called second-round effects, where an initial price shock ripples outward into wages, services, and consumer goods, simply aren’t showing up yet. Inflation expectations remain anchored near the ECB’s 2% target, which is the central bank’s way of saying people still believe prices will eventually calm down. But he’s not exactly popping champagne either. In a Financial Times interview published September 1, Rehn warned the ECB needs to prepare for a scenario where the conflict drags on, keeping sustained pressure on energy prices. Rehn has previously described th...