By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf said Wednesday that additional monetary policy action would be needed if persistently high energy prices generated wider inflation pressures, while indicating that this was not happening so far.

Makhlouf, governor of the Central Bank of Ireland, told Irish national television and radio broadcaster RTÉ that “although inflation is above our target, we're not seeing the sorts of second round effects that start feeding through to prices.”

Should such effects emerge, “we will have to take action again to meet our target,” he said.

He was uncomfortable with the ECB’s inflation outlook above 3%, he said.

Uncertainty meant the Governing Council would continue deciding policy “meeting by meeting” on the basis of incoming information, according to Makhlouf. Higher borrowing costs could not reverse the rise in energy prices themselves, but could restrain their broader inflationary consequences, he said.

On Ireland’s response to expensive energy, Makhlouf argued against indiscriminate assistance, saying support should be “targeted, timely, and tailored” toward those households facing the greatest strain.

He also urged the government to concentrate on easing domestic infrastructure constraints, identifying “housing, water, the electricity grid” as areas where bottlenecks were “pushing up prices.” Faster completion of projects was important both economically and for ensuring value for money, he said.

Ireland’s dependence on corporation tax receipts was another source of concern, Makhlouf said. He favored broadening the tax base and directing excess corporation tax revenue into sovereign wealth funds.