European Central Bank (ECB) may have to intervene if energy prices continue to rise to curb inflation, Isabel Schnabel, a member of the institution’s board of directors, said on Saturday, Reuters reports.
Eurozone inflation hit a record 5% in recent months, more than twice the ECB’s 2% target, but the bank has not tightened its monetary policy so far, arguing that price growth will slow on its own. the main reasons for high inflation are the unique transient factors, according to News.ro.
“The green transition poses medium-term inflation risks. Rising energy prices may require a deviation from a policy of ignoring,” Schnabel said.
Schnabel said there are two scenarios in which the ECB should change policy. The first is if high energy prices are shifted to other sectors of the economy and change pricing behavior.
“So far, however, there are no signs of a larger second-round effect. Wage growth and union demands remain relatively moderate,” Schnabel argued.
The second scenario would be whether the trajectory of energy prices, which is severely affected by carbon taxes and the green transition, threatens to push general inflation above target.
Imbalances between supply and demand may remain long-term as the transition period continues, and carbon prices will continue to rise, meaning that the contribution of energy and electricity prices to consumer price inflation could be above its historical medium-term norm, she said.
She added that the carbon tax is unlikely to be a negative factor for economic growth, with studies suggesting that it could even have a modest positive impact.