ECB’s Rehn: Must Consider Highly Uncertain Inflation Impact of Tariffs in Medium-Term

6 June 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Olli Rehn said on Friday that the ECB should take into account the uncertainy about the inflation impact of tariffs in the medium-term.

In a blogpost on the website of the Bank of Finland, which he heads, Rehn said that inflation was now close to the 2% target and that ‘[i]n the short term, inflation is slowing below the ECB's objective and more than the ECB forecast in March.’

This was mainly due to cheaper energy prices and the strengthening of the euro, he said, though inflation in wages and services was also slowing.

‘At the same time, we should take into account that the overall impact of tariffs on inflation in the euro area is highly uncertain in the medium term’, he said. ‘It depends not only on the magnitude of the tariffs implemented, but also on the target countries and sectors of the tariffs, and on the reorientation of international trade.’

The alternative scenarios on tariffs provided in the ECB projections suggested inflation could slow even further than what is anticipated in the baseline scenario, according to Rehn.

‘However, the scenarios have not been able to describe all possible impact channels related to the trade war’, he said. ‘For example, serious disruptions to supply chains and disruptions in financial markets have been excluded from the analysis.’

The ECB cut rates to 2% in order to ensure that inflation stabilised in the 2% target in the medium term and economic growth remained positive, he said.

‘Uncertainty continues to highlight the importance of meeting-specific decision-making’, he said. ‘The Governing Council will not commit to any interest rate path at this time, but will retain full discretion in its interest rate decisions at all future meetings.’