By David Barwick – FRANKFURT (Econostream) – The arguments favor another European Central Bank interest rate hike in September to safeguard the inflation target, Governing Council member Primož Dolenc said Friday, pointing to incoming data showing that inflation was persisting.

Dolenc, who heads Banka Slovenije, told Bloomberg that “[t]he arguments are there for a hike in September to safeguard our inflation target. With the new data coming in, we see that the inflation situation doesn’t resolve itself.”

Dolenc indicated that after a possible September increase, the ECB could use its December meeting to reassess the medium-term outlook.

“By December, we’ll have another set of projections for the next three years and clarity about other developments,” he said. “This will give us more clarity about the inflation path over the medium term.”

Dolenc cautioned against placing too much weight on estimates of the neutral interest rate, saying its definition was “not an exact science.”

He also said there were no signs yet that the initial inflationary shock was generating second-round effects, but warned against waiting for such effects to emerge before acting.

“[S]econd-round effects are not visible yet, which is a good sign,” Dolenc said. “However, we shouldn’t wait for them to materialize.”

If economic agents ceased to believe that the ECB was capable of delivering its inflation target, second-round effects could become a reality, he said.

Dolenc also welcomed the increase in bond yields as part of the tightening in financial conditions needed to keep inflation expectations anchored.

“Rising bond yields are actually in our interest,” he said. “Even if the current shock mostly comes from the supply side, if you want to anchor the inflation expectations at our inflation target, then it is expected that monetary policy will have to be more restrictive compared to the one before the shock.”