By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Olli Rehn on Saturday said the ECB would have to react quickly and decisively if higher energy prices began feeding into wages and other prices and inflation expectations started rising.

Rehn, who heads the Bank of Finland, said in an interview with Finnish broadcaster Yle’s Ykkösaamu that the ECB was monitoring particularly closely whether the rise in energy prices was spreading beyond its direct impact.

“If signs of a price-wage spiral arise and inflation expectations begin to rise, monetary policy will have to react quickly and decisively,” Rehn said.

In the short term, higher energy prices would accelerate inflation and weaken economic growth, he said.

Though the Governing Council decided on Thursday to keep rates unchanged and continue assessing the effects of the Middle East war on the medium-term inflation outlook, over the course of the next six weeks “we will come to a crossroads,” he said.

By then, the ECB would either see the Iran war becoming prolonged and inflationary, or an early-summer resolution that would ease the pressure on both prices and growth, Rehn said.

The latter outcome was “perhaps less likely,” he said.

“In these two different scenarios, monetary policy-making is quite different,” Rehn said.

The ECB was now focused on assessing the direction of global politics and the effects on inflation and economic growth, he said.

“In any case, the ECB Governing Council will make sure that inflation stabilizes at its 2% target over the medium term,” Rehn said.

On Finland, Rehn described the country’s unemployment figures as “quite concerning,” while also pointing to some positive recent economic news.