By David Barwick – FRANKFURT (Econostream) – There are no material signs of second-round inflation pressures in the euro area, while inflation expectations remain under control, European Central Bank Governing Council member and Central Bank of Cyprus Governor Christodoulos Patsalides said Friday.

“I would like to note that there are no material signs of second-round inflationary pressures, as demonstrated by the latest indicators regarding wage trends,” Patsalides said in a statement.

Inflation expectations, as reflected in international financial markets and survey-based indicators, also remained under control, Patsalides said.

As a result, the ECB remained well positioned to manage the current uncertainty and was determined to ensure that inflation stabilized at its 2% medium-term target, he said.

The Governing Council on Thursday raised all three key ECB interest rates by 25bp, taking the deposit rate to 2.50%.

Patsalides said the Council had concluded that the increase was warranted after assessing the latest data and the baseline, mild, adverse and severe scenarios.

The initial scenario analysis conducted at the beginning of the Middle East crisis had indicated that a prolonged conflict would intensify inflation pressures and raise the baseline inflation outlook, Patsalides said. Six months into the conflict, the latest data had confirmed that assessment, he said.

The inflation outlook continued to be shaped largely by the energy shock, while upward revisions to the ECB’s growth projections reinforced a higher baseline inflation trajectory, Patsalides said.

The September baseline indicated that inflation would remain elevated for a prolonged period despite the tightening of financial conditions caused by the ECB’s June rate increase and the rise in long-term bond yields, he said.

Turning to Cyprus, Patsalides said the economy remained resilient despite heightened geopolitical uncertainty, supported mainly by services-sector momentum, strong private consumption, a robust labor market and sound public finances.

Inflation pressures in Cyprus had nevertheless intensified in recent months, with inflation rising to 5.2% in August from 4.4% in July, Patsalides said. He attributed the increase mainly to services and energy prices, with services remaining the largest component of inflation.

Those developments reflected strong domestic and tourism-related demand, as well as the pass-through of higher energy costs to electricity and transportation prices, Patsalides said.

Inflation in Cyprus was expected to moderate gradually after 2026 as external price pressures faded, but the risks to the outlook remained tilted to the upside, he said.