ECB’s Müller: Energy Price Growth Likely to Slow Next Year

21 December 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Madis Müller on Tuesday said that energy prices could be expected to decelerate next year.

In an interview with Estonian public broadcaster ERR, Müller, who heads the Estonian central bank, spoke about the domestic economy, but referred to price developments driven by global markets. Estonian inflation, he said, is at almost 10%, with the short-term evolution hinging on energy.

‘It is very difficult for me to say what the price of electricity or gas will do because it depends on geopolitical developments’, he said. ‘If it goes even higher in the short term, it will certainly have an impact on the inflation statistics.’

‘But looking ahead, it is difficult to imagine that this rate of increase in energy prices will continue and that, as a consequence, energy price inflation will start to fall over the next year’, he continued. ‘Of course, the fact that price growth is slowing down does not mean that price levels will fall sharply - we are talking about a slowdown in growth. However, it would be logical that energy prices will come down from today's peaks.’

On the other hand, food and raw materials would likely become more expensive, he said. ‘The risk is that the longer the price increases have been rapid due to such temporary factors, the more they will be passed on in the prices of goods and services. We need to be careful not to overheat the Estonian economy, which is in a good position in itself, in any way that would give a further boost to prices.’

There are currently no ‘direct signs’ of excessive domestic second-round effects, ‘but it is certainly worth being alert to the fact that if price rises remain at a relatively high level for a prolonged period of time, this could lead to a spiral where the labour market is tight, companies cannot find workers and the pressure to increase wages is already high’, he said.

‘On the one hand, people are asking for higher wages in order not to lose their standard of living, but on the other hand, entrepreneurs do not have much choice if there are no alternatives in the labour market’, he continued. ‘In this case, there is a risk that wages will rise rapidly, prices will rise rapidly and, therefore, prices will have to rise in turn, as costs have risen for businesses.’