Pereira, ECB Official: Eurozone Inflation Has Not Spread From Energy to Other Prices

Alvaro Santos Pereira, member of the European Central Bank's Governing Council, says energy-driven inflation has not yet spread to other prices in the eurozone. According to him, the share of goods and services whose prices rise by more than 3 or 4 percent has remained roughly unchanged for about two years. Pereira warned […]

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Álvaro Santos Pereira, head of the Central Bank of Portugal and a member of the European Central Bank's Board of Governors, says that the inflation caused by the increase in energy prices in the Eurozone has not yet spread to other sectors of the economy; A comment that could be reassuring for the European Central Bank when assessing the risk of rising prices.

Santos Pereira said at the Bangkok Economic Festival that the positive point is that European inflation has not yet widened. He pointed to the share of goods and services whose prices increase by more than 3 or 4 percent and said that this share has remained almost constant in the last two years.

At the same time, he clarified when this situation could change: if price increases spread to more sectors, central banks will be forced to act. These comments show that the European Central Bank is ready to ignore the energy shock for now, but will react if price increases spread to other groups of goods and services.

Pereira considered the price of natural gas to be the most important risk ahead and said that a winter similar to the winter of last year could become a problem for the price of gas. Rising gas prices directly increase energy costs for households and businesses. He also said that the recent rise in bond yields has more to do with financial concerns than the inflation outlook.

His comments support the view that the European Central Bank may not change its monetary policy for now in the face of an energy price shock. Such a stance could limit the pressure for further tightening in the short term and, as a result, not provide a fresh stimulus from the path of interest rate hikes for the euro. Attributing bond yield growth to financial issues is also important from the point of view of bond traders; Because it suggests that the European Central Bank may consider raising yields more of an issue for governments than an issue for monetary policy.

The index Pereira mentioned measures the extent of price increases, not the average rate of price growth. This criterion has attracted more attention among central banks. Bloomberg Economics this week highlighted a similar indicator for the US, which showed that fewer consumer price groups rose at a fast pace in September. Junko Koeda, a member of the board of the Central Bank of Japan, also pointed to the annual price increase of more than 70% of items in the consumer price index of Japan and considered it a sign of inflation in this country.

For the European Central Bank, the next eurozone inflation data, gas price trends as winter approaches and any increase in the share of fast-rising items are among the most important things to watch. A cold start to winter could test Pereira's optimism and possibly reinvigorate market expectations of a rate hike.