By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras said Thursday that the current inflation picture reflected both energy-related supply constraints and demand pressures, making the challenge facing monetary policymakers particularly complex.

Stournaras, who is governor of the Bank of Greece, told the Greek parliament’s television channel that the ECB needed to exercise care in taking further policy decisions.

“I said we should be cautious,” Stournaras said when asked about his call for the ECB not to rush its decisions.

Higher interest rates affected borrowing, he said, but the overriding priority of a central bank remained inflation.

“The major priority for a central bank is inflation,” Stournaras said.

He said current inflation could not be attributed solely to excess demand, with energy supply shortages related primarily to the war in the Middle East as well as Russia’s war in Ukraine playing an important role.

However, demand factors were also contributing, Stournaras said, pointing to fiscal expansion in a number of countries and very large private-sector investments in artificial intelligence.

“So the issue of inflation today is quite complex,” he said.

Stournaras said central banks could not disregard an inflation shock even if it originated entirely on the supply side, because of the risk that inflation expectations could develop.

He cited the experience of the 1970s, when central banks initially viewed higher oil prices as a supply shock that would correct itself before inflation became much more widespread.

Stournaras said the ECB’s 2% inflation objective ultimately protected vulnerable households despite the adverse effects that higher interest rates could have on borrowing.

“But the worst thing of all is to let inflation get out of control,” he said.

Turning to Greece, Stournaras said annual inflation of 3.8% in August was among the highest rates in the euro area and exceeded the euro area’s 3.2% rate by 0.6 percentage point.

The Bank of Greece attributed that differential mainly to excess demand in Greece, where demand was exceeding the country’s productive capacity, with strong tourism contributing to the pressure, he said.

Stournaras also said he was concerned about public debt elsewhere in the euro area, including in France, Italy and Spain.

Asked whether the eventual choice of the ECB’s next president could alter monetary policy, Stournaras said it would not, stressing that policy was determined collectively by the Governing Council and that the possible candidates were already broadly known.