The unexpectedly sharp drop in energy prices, combined with the slowdown in inflation in the eurozone, suggests that the European Central Bank (ECB) may not need to raise interest rates further beyond the June hike, said Greek central banker and ECB Executive Board member Yannis Stournaras.
Data released on Wednesday showing that annual inflation fell to 2.8% was “a major downward surprise,” said the governor of the Bank of Greece from Sintra, Portugal.
At the same time, he noted that ECB officials should monitor how businesses are passing on energy costs to prices, as well as the impact of the investment boom linked to artificial intelligence.
“I don’t believe there will be any action in July, unless the situation changes dramatically,” Stournaras said in an interview on the sidelines of the ECB’s annual forum. “Based on current data, I believe it may be preferable to keep interest rates at their current levels for some time,” he added.
He stated that the governors of the Gulf countries’ central banks had informed their counterparts in recent days that the damage to energy infrastructure “was not that extensive and that Iran will return to the market with significant quantities of oil.”
As he noted, this assessment contrasts with previous analyses, which suggested that it would take a long time for oil and natural gas prices to stabilize, 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 special attention.
“Very often in Europe, when oil prices rise, that increase is immediately passed on to consumer prices,” he said. “However, when prices fall, there is no corresponding decrease. This is due either to a lack of competition or, in countries such as Greece, to excessive demand.”
According to Mr. Stournaras, the massive 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.