‘Conflict of attrition’ in Iran could keep inflation high, ECB policymaker warns

{"text":[[{"start":10.2,"text":"The European Central Bank must prepare for an extended “conflict of attrition” in the Middle East that could keep inflation elevated in the Eurozone, one of its top policymakers warned ahead of an expected rise in interest rates next week."}],[{"start":23.88,"text":"The remarks by Finnish central bank governor Olli Rehn will reinforce market expectations that the ECB will announce another quarter-point increase in its benchmark deposit rate to 2.5 per cent when it next sets rates on September 10."}],[{"start":37.36,"text":"“We must show no complacency in the face of these inflationary pressures,” Rehn told the FT in an interview, referring to energy prices that have been pushed up by the conflict and the near closure of the Strait of Hormuz shipping channel."}],[{"start":50.44,"text":"“We cannot afford any affordability crisis in Europe,” he said."}],[{"start":55,"text":"Rehn spoke before figures on Tuesday were expected to show that inflation in the 21-country Eurozone had jumped to 3.3 per cent in August from 2.9 per cent in July as tensions in the Middle East kept oil and gas prices high. Inflation has been above the ECB’s 2 per cent medium-term target since March."}],[{"start":null,"text":"

"}],[{"start":74.04,"text":"Rehn’s comments mark a hawkish shift for a policymaker who until recently had put greater emphasis on risks to growth than inflation, suggesting support for tighter policy has broadened across the ECB’s governing council."}],[{"start":86.72,"text":"ECB executive board member Isabel Schnabel, one of the central bank’s most prominent hawks, last week openly called for another rate increase in September in an interview with Bloomberg."}],[{"start":97.2,"text":"In June, the ECB became the first central bank in the G7 to increase borrowing costs in response to the Middle East energy shock when it announced a quarter-point increase in its benchmark rate to 2.25 per cent."}],[{"start":110,"text":"The 27 members of the ECB’s governing council will meet next week for the first time after the summer break in Berlin."}],[{"start":117,"text":"Investors put the probability of them agreeing on a quarter-point increase next week at more than 95 per cent. This would take the deposit rate to its highest level since March 2025. Investors have fully priced in a further quarter-point increase that would take the deposit rate to 2.75 per cent by February next year."}],[{"start":135.64,"text":"While Rehn stopped short of openly endorsing a September rate rise, he said that the market pricing for next week’s meeting was “understandable”. He was more guarded over subsequent decisions, pointing to widespread geopolitical uncertainty that made it necessary to decide “meeting by meeting”."}],[{"start":152.96,"text":"Hopes for a quick end to the Middle East conflict and the resumption of normal shipping traffic through the Strait of Hormuz were dashed over the summer as an interim ceasefire deal fell apart."}],[{"start":163.6,"text":"On Sunday, the US military struck Iranian rocket launchers on an island in the Strait of Hormuz, in the first American attack on Tehran’s forces in more than a month. Tehran retaliated by firing missiles at Jordan. Oil prices subsequently rose back above $90 a barrel, 13 per cent higher than in early August and around a quarter higher than before the start of the conflict in late February."}],[{"start":188.52,"text":"“We have to be prepared for a protracted conflict because both sides — the Trump administration and the Revolutionary Guards — have really conflicting objectives,” warned Rehn. “We may see a conflict of attrition in the Middle East.”"}],[{"start":202.48,"text":"He also pointed to a “remarkable resilience” in economic growth in the Eurozone this year as the currency area weathers higher energy prices and trade tensions better than feared."}],[{"start":212.68,"text":"Rehn said that, based on his reading of recent data, he expected the Bank of Finland to raise its growth projection for 2026, which currently stands at 0.7 per cent. “I would now assume that growth this year will be somewhere in the ballpark of 1.5 and 2 per cent,” he said."}],[{"start":230.72,"text":"He called the Finnish economy a “microcosm of the Eurozone” that is highly dependent on “the export engine of Germany”. Economists say Germany, the Eurozone’s biggest economy, is currently on track for its strongest growth since 2022."}],[{"start":245.44,"text":"While higher energy prices have pushed up headline inflation, Rehn said there were “no signs of second-round effects” in the form of a price-wage spiral."}],[{"start":253.84,"text":"But he also cautioned that the surge in inflation that followed the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine had initially failed to show up in forecasts. “That’s why the governing council of the ECB is quite cautious about making definitive judgments and [is] self-critical about any forecast at the moment.”"}],[{"start":280.44,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1788247399_1940.mp3"}