By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Piero Cipollone said the ECB’s monetary policy was aimed at preventing the current energy shock from generating second-round effects and at keeping inflation expectations anchored.

In an interview with French daily Ouest-France, Cipollone said the ECB was “currently facing an energy shock, driven notably by oil prices.”

The interview was devoted mainly to the digital euro; the monetary policy comments came when Ouest-France asked why the ECB should raise key interest rates when current inflation was being imported through higher oil prices.

Cipollone said higher energy prices had three main effects: a direct effect on consumers, an indirect effect through higher production costs and prices for goods and food, and second-round effects if households and businesses came to expect inflation to remain high.

“If these adjustments become too pronounced, they create additional costs that, in turn, feed into inflation,” he said.

The ECB was currently seeing the first two effects, “but not the third,” Cipollone said.

“What the ECB can do through its monetary policy is prevent these second round effects from taking hold and convince households and businesses that inflation will return to our 2% target over the medium term,” he said.

That was why the ECB monitored inflation expectations “very closely,” Cipollone said.

“If medium to long-term inflation expectations remain anchored at 2%, inflation will return to our target and we will have done our job,” he said.