By Marta Vilar – BRUSSELS (Econostream) – European Central Bank Governing Council member Olli Rehn said on Thursday that the conflict in the Middle East would likely weaken demand and weigh on prices, while supply disruptions could pose an upside risk to inflation.

In an interview with Bloomberg TV, Rehn, who heads the Bank of Finland, said that the ECB should “keep a cool head amid this turbulence,” noting that the Iran conflict would have consequences for both the economy and financial markets.

On growth, he said the situation would “likely have a dampening effect on demand,” similar to previous energy shocks or the COVID-19 pandemic. On inflation, he said supply disruptions represented an upside risk, while weaker demand could exert downward pressure on prices.

Which of these forces ultimately dominates was therefore “an empirical question,” he said.

“This time so far, the surge in gas prices or oil prices has been less dramatic so far compared to Russia’s invasion,” he said. “But the situation is very turbulent, obviously, and we have to be now closely monitoring all these developments.”

Given the uncertainty about the conflict’s economic impact, the Governing Council should avoid drawing “hasty conclusions,” Rehn said.

Asked about the euro, he said he would not set specific thresholds in either direction, adding that recent movements had not been “so dramatic” compared with historical trends.

 

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