The unexpectedly large drop in energy prices, combined with the slowdown in inflation in the eurozone, suggests that the European Central Bank (ECB) may not need to proceed with a new interest rate increase beyond that of June, said the Greek central banker and member of the ECB Governing Council, Yannis Stournaras.
The data published on Wednesday, which showed that annual inflation fell to 2.8%, constituted “a big surprise to the downside,” said the governor of the Bank of Greece from Sintra, Portugal.
At the same time, he pointed out that ECB officials should monitor the way businesses pass on energy costs to prices, as well as the effects of the investment boom linked to artificial intelligence.
“I do not believe there will be any move in July, unless the situation changes dramatically,” Stournaras said in an interview on the sidelines of the ECB’s annual forum. “Based on today's data, I believe that it may be preferable to keep interest rates at their current levels for some time,” he added.
He said that the governors of the central banks of the Gulf countries informed their counterparts in recent days that the damage to energy infrastructure “was not so great and Iran will return to the market with significant quantities of oil.”
As he stated, this assessment runs counter to previous analyses, according to which a long period of time would be required for oil and natural gas prices to ease, even if the conflict in the Middle East were to end soon.
However, Mr. Stournaras warned that the indirect effects of the recent energy shock on prices still require particular attention.
“Very often in Europe, when oil prices rise, this increase is immediately passed on to prices,” he said. “But when prices fall, there is no corresponding reduction. This is due either to a lack of competition or, in countries such as Greece, to excess demand.”
According to Mr. Stournaras, the huge wave of investment in artificial intelligence is also expected to have a significant impact on prices, which, among other things, will affect the cost of imported electronic products from countries such as South Korea and Taiwan.