ECB’s Rehn: Inflation to Undershoot Target in Near Term but Ultimate Outcome Still an Open Question

10 June 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Olli Rehn on Tuesday said that euro area inflation was going to undershoot the ECB’s target in the near term but that the ultimate impact of US tariffs on inflation was uncertain.

At a press conference at the Bank of Finland, which he heads, Rehn said that inflation was currently ‘close to’ the ECB's objective. ‘In the short term, inflation will slow below the ECB's objective’, he said, ‘mainly due to lower energy prices and a stronger euro exchange rate.’

‘At the same time, it is important to note that the effects of tariffs on inflation are highly uncertain’, he said, as these depended on tariff levels, on which sectors and countries they were applied to, and on the reorganisation of global trade.

Should trade tensions worsen, however, both growth and inflation could turn out lower than expected, he said. A surprisingly positive resolution of the tensions could in contrast accelerate growth ‘and, to a lesser extent, inflation’, he said.

‘Overall, the risks to economic growth are still pointing towards weaker growth than forecast’, he said.

The ECB would stick to its meeting-by-meeting approach, he said, adding that ‘in these times, monetary policy feels almost as much an art as a science.’

According to Rehn, euro area growth could nevertheless improve. ‘Strong real wage and employment developments, as well as easing financing conditions due to lower interest rates, support the strengthening of growth’, he said. ‘In addition, the positive growth impact of increased defence spending will offset the adverse impact of tariffs in the coming years.’