ECB’s Rehn Warns of Complacency About Downside Inflation Risks

31 August 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Olli Rehn on Sunday cautioned against being complacent about downside risks to euro area inflation and noted that the ECB's June forecasts incorporated further easing.

In an interview with the FT, Rehn, who heads the Bank of Finland, suggested that there was a danger of “complacency” about the inflation outlook despite inflation risks being “tipped to the downside”.

“We have to be mindful of the downside risks to inflation,” the FT quoted Rehn as saying. In this context, he highlighted “cheaper energy, a stronger euro, and contained service inflation”.

The last ECB macroeconomic projections showing a decline of inflation in 2026 to 1.6% were “based on assumptions which relied on market data that included one more [rate] cut this year”, he pointed out.

This was “not policy guidance for us”, he said, but was “certainly important to recall”.

The EU-US trade deal had “both negatives and positives” but was “worse than assumed in our June baseline”, he said. US tariffs on European goods would dampen growth by “some decimal points”, he said, while unwillingness to retaliate “implies we will not see higher prices of imported US goods in the euro area”.

Higher German government spending would probably only have a significant impact as of 2027, he said. The effect of this would ideally be felt sooner, “and that is possible, but it will really depend on how quickly the concrete investment decisions are made,” he said.