The European Central Bank can take a “measured” response to the energy-price shock caused by conflict in the Middle East as spillovers to the rest of the economy remain limited, Chief Economist Philip Lane said.
While underlying inflation is expected to rise next year, officials aren’t witnessing any “non-linear” reaction at the moment, he said Thursday in London. Wage deals being signed at the moment are “quite moderate,” he added.
“Sometimes you can look through, sometimes you have to respond in a moderate way, and sometimes you have to be non-linear about it,” Lane said. “What we’re saying right now is we think this is a mid-sized shock, and a measured response is what we need to do.”
The ECB is debating whether to add to the two interest-rate increases it enacted this year in response to the Iran war. Economists expect officials to deliver a final move only in December, when a new round of economic forecasts is available.
That would take the deposit rate to 2.75%, just above the range in which it’s thought to have a neutral impact on the economy.
Some Governing Council members have warned that a mildly restrictive stance may be necessary to return inflation to the 2% goal.
Speaking earlier in the day, Croat central-bank Governor Ante Zigman predictged a “ very intense debate ” at the forthcoming meeting later in October.